"As a general rule the most successful man in life
is the man who has the best information!"
Benjamin Disraeli (1804 -1881)As the markets keep on calling into question every single portion of your investments, even well-informed investors never stop doubting themselves!
You wonder ...
Did I make the right decisions when I bought these stocks?
To answer yourself in any rational fashion, you need to be able to judge whether circumstances, not just psychology, have changed for your holdings.
In times like these, strong fundamental analysis becomes the most important key to your convictions!
Maybe you've read about a company that intrigues you, or one of your friends is excited about a particular stock.
Perhaps you keep seeing a stock on various "buy" lists and wonder what makes it so appealing.
Before you decide to buy a stock, you face two key research tasks:
1. Fundamental Analysis:
Examining the company issuing the stock.
2. Technical Analysis:
Evaluating the stock itself.
Both forms of analysis are sometimes needed. You don't want to buy a stock that looks attractively priced, only to find out that the company is on the skids.
Likewise, you may not want to sink a lot of money into a company that is so popular among investors that its stock has become overpriced.
To further clarify the difference between fundamental analysis and technical analysis, think of the market as an open-air bazaar with stocks as items for sale.
A technical analyst would get into the shopping frenzy with eyes seeking the crowd. He would ignore the goods on sale altogether!
When the technical analyst notices a group gathering in front of the booth selling, say, shirts, he'd scramble over to buy as much inventory as possible, betting that the ensuing demand would push prices higher.
He doesn't even care what a silk shirt is as long as some greater fool at the back of the line is willing to buy it for more than the technical analyst paid!
The fundamentalist, on the other hand, takes a more sedate approach. The fundamentalist's eyes would be solely on the products before him.
He would dismiss the other shoppers as an emotional herd of fools who couldn't tell a good deal if one slapped them in the face. Once the crowd dissipated from the shirt booth, he might casually wander over to examine the merchandise.
