Homework: Doing Homework On Your Investments

By Royce Leon

Some people are ready to pick stocks and ready to step the gun, but forget the very fundamental tool in investing which is research. Research is one of the most important tools to making sure that your investment in the right track and that its not headed towards a collision course towards the bottom. When you research stocks, there are two ways to research stocks; in a fundamental analysis and in a technical perspective. A fundamental perspective.

A Fundamental Analysis means that you are looking at the stock in an overall perspective. That means you are looking at the earnings ratios, dividend, debt, cash flow, these are some of the many ratios that you should be looking at when you are researching the stock. Next, you want to be looking at the overall trend of the company, have they been growing as a business? Is the industry as a whole growing or has it stopped? Is the stock a cyclical type of stock or is it a non cyclical stock? Are they making orders or the demand for their product declining? If the fundamentals that you have researched indicate towards a growth trend, then you should continue staying with the company and leaving if the fundamentals don't look good. Now fundamentally the stock looks good, but the market moves it in a different way, don't look at it as a reason to sell, but rather an opportunity to add more positions into the stock.

The second type of analysis is the Technical analysis. The technical analysis would not look at the fundamentals of a stock, but rather through charts. There are many websites just as CNBC, Yahoo, Google Finance, and Think or Swim which give technicians charts to determine where the stock would go from there. They look for trend lines in the graphs to determine where the stock would go from there. They also would look at the graph to compare with the indexes like the S&P 500, Dow Jones Industrials or the Nasdaq. They see if the stock is undervalued compared to the indexes or if it is overvalued at the moment. They also look at trends in the information in the charts and ratios, they compare if it is getting better or the future holds uncertainty based on the information given.

Now depending on which style you prefer is depending on what kind of investor you want to be. The most important thing is to research before investing into a company and keep up the research so that you would not lose money in your investments when it is too late.