The Finance Professor: Fundamental Stock Trading

However, stocks can hit the virtual brick wall of growth and exhibit growth deceleration. Starbucks (SBUX Quote - Cramer on SBUX - Stock Picks) is a prime example of such a stock. Starbucks investors were accustomed to mid- to high-20s growth rates and now the company is maturing to an expected growth rate of roughly 20% to 21% in the next two years. As a result, growth is a two-sided equation where the seductive aspects are balanced by its risks.

Fundamental Investing: Value. Value oriented investors can trace their origins back to Benjamin Graham and David Dodd who in 1934 published the ground-breaking textbook titled Security Analysis. Value investors seek to purchase companies that are selling (trading) at less than their intrinsic value. This intrinsic value can be calculated by analyzing the discounted cash flows of future earnings , valuation of assets less liabilities, or via certain ratios such as the price-to-earnings ratio (P/E or multiple ) and the price-to-book ratio (stock price divided by book value per share). The most famous value investor of all-time is Warren Buffett (Stockpickr: Warren Buffet's Portfolio).

Some value "purists" do not place any value on growth. Others value investors, such as Warren Buffett, believe that value and growth are inextricably linked. I follow the theory of "growth at a reasonable price" (or GARP), which was pioneered by another famous investor, Peter Lynch. GARP combines elements of both value and growth investing.

How Fundamental Traders Analyze Stocks

Fundamental stock analysis begins with assembling the necessary information that will provide the basis for your complete understanding of a company that you're interested in. If you're serious about fundamental analysis, here is a list of the information you'll need to gather in order to get started: