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.
Often all the things we want to accomplish aren’t feasibly achievable in a set period of time. When this is true, we have to make the often difficult decision of determining which path matches with our values. In other words, we probably can’t achieve every goal we have so we have to prioritize.
This is very true with short term goals like making it to your kid’s basketball game verses watching the football game live. But it can also be true with long term goals. For example I certainly would enjoy the process of being a masterful accountant who has both technical skills and people skills. However I have come to realize that I might never become the world’s greatest accountant if I have other goals more worthwhile (for example like becoming a great financial advisor).
You might think a strange thing to add to this list is goals. After all, aren’t goals things that empower us and keep us on track? Yes and no. In one sense goals are essential to producing the results we want in life. In another sense, goals by themselves, without effective plans to get there and way to streamline actions towards them, are meaningless.
As Warren Buffet and Bill Gates agreed in an interview: one of the greatest factors to success is focus. Putting all your energy on one task, both with your mind and body, is a powerful thing.
Having too many goals, I have found, can get in the way of this powerful focus. That’s why it’s so important to recognize the things that are worthwhile and the things that can wait.
Lastly on this simple list of 3 is inflation. This is more of a technical obstacle than a mental one. However the force can be equally important. If you were to buy a house in a stable neighborhood today, do you think the same house would be worth more in 30 years? Yes, I would hope so. This fact that we can all bet on, the fact that prices will overall rise year after year, is called inflation.
Inflation is powerful because it covers both the consumption side (for example like purchasing gum) and the investment side like stocks or investment real estate. Inflation is such an important force that I will be covering a brief history and action steps around it tomorrow in my blog. Tune in!