Stock Valuation and Fundamental Analysis
When you use stock fundamental analysis techniques, you learn as much as possible about the financial and market position of a company, and then determine from those fundamentals whether or not the company's future looks promising.
If your analysis of historical growth patterns and profit patterns of the company show a steadily growing organization, and your research indicates that the management of that company is sound and and competent, fundamental analysis techniques concludes that you have good reason to believe the company will continue its positive growth momentum into the future.
The biggest element of the stock valuation fundamental analysis technique, is the element of time. You have to be willing to put your money into those fundamentally sound companies for a long period of time in order to profit from their growth. This strategy is generally profitable over the course of years, and not necessarily weeks or months.
Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and company-specific factors (like financial condition and management).
The end goal of performing fundamental analysis is to produce a value that an investor can compare with the security's current price, with the aim of figuring out what sort of position to take with that security (underpriced = buy, overpriced = sell or short).
This method of security analysis is considered to be the opposite of technical analysis.
Fundamental analysis is about using real data to evaluate a security's value. Although most analysts use fundamental analysis to value stocks, this method of valuation can be used for just about any type of security.
And part of financial intelligence is to understand Financial Literacy. Financial Literacy is understanding basic accounting and understanding Financial Statements and Cash Flow.
Financial literacy is fundamental to fundamental investing.
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