Part 3
Generally, there are two ways of analyzing stock. Some buy stock base on fundamental analysis and some uses technical analysis.
In fundamental analysis, investor would study the company business, strategy, macro environment and perform some financial ratio analysis to decide on the value of stock. They would then buy if the stock is undervalued or meet the investment objective.
Fundamental analysis could be further broken down into macro economy analysis, sector analysis and company analysis.
Macro economy analysis – Study the macro economy environment and its impact on stocks. E.g. Singapore economy is going to do well in next few years, so buy Singapore shares.
Sector analysis – Perform analysis on a particular industry/sector outlook and pick the company that could benefit from it. E.g. healthcare and oil & gas sector etc.
Company analysis – Analyse the company management, business strategy, industry/market and financial ratio to decide whether to purchase the stock.
In technical analysis, investor would plot company’s share price chart. Base on the daily movement or even hourly movement of the stock, they would buy and sell depends on the technical signal. Technical analyst believes that share price fluctuation would form a pattern that is likely to repeat itself. One is able to profit from this recognized historical pattern.
It is hard to say which style would produce better return and some investor actually combines both of them. I would say just pick a style that suits you.
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