Getting Started: Fundamental Analysis

 

When it comes time to make investment decisions, it's a good idea to be guided by more than just your gut instincts. If used effectively, fundamental analysis  fundamental-analysis is one of the most useful ways to determine whether a company is a good investment choice. Even if you don't have a finance background, don't let that stop you from becoming your own personal stock portfolio portfolio analyst.

Two Schools

When it comes to stock analysis, there are two main schools: Fundamental analysis and technical analysis technical-analysis. Fundamental analysis is all about using concrete information about a company's business to try to find the real value of a stock, while technical analysis eschews all of that in favor of looking at the way pure market factors will affect a stock's movement ("Chart of the Day").

They call it fundamental analysis for a reason: It can be fundamental to your ability to make money in the stock market. When you take a look at a company's fundamentals, you're judging its corporate health. After all, who wants to invest in an unhealthy company? This is a mantra that the likes of über-investor Warren Buffett uses, so why shouldn't you (Stockpickr: Warren Buffett's Portfolio)?

Business Basics

Before you begin to analyze public companies public-company for their investment potential, you'll need to understand some business basics, particularly those relating to the company's financial statements. Financial statements are to an analyst analyst what a patient's bloodwork might be to a doctor; they're the main data points that can be used to assess overall health. There are three principal financial statements: The income statement income-statement, balance sheet balance-sheet, and statement of cash flows cash-flow.

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