When it comes to picking specific stocks for investment, there are two ways to analyze them. The first is Fundamental Analysis.
Fundamental analysis the process of examining a company’s “fundamentals”. This means you look into their balance sheet, their income statement and the statement of cashflows. You look at the concrete facts about the company.
Ask questions like, is this business profitable? Do the facts suggest it will increase profitability in the next few years?
What kinds of debts (short-term and long-term) does this business have? Will it be able to pay them?
What weaknesses are there to this business and its market that could challenge its position? What are its strengths?
The second type of analysis is Technical Analysis. This involves projecting the stock price based on the trends. You look at the 50 day moving average, and even the 200-moving average. This is more of a charts and trends-based analytical process.
Overall, for long-term investors, fundamental analysis is the way to go. Not only does Fundamental analysis involve more logical and foundational decision-making, it is also the strategy used by some of the best investors in the world like Warren Buffet. Overall, if you’ll wondering which strategy is best, consider your purpose for investing.