In a previous article we learned that fundamental and technical analyses are two types of research to do. Technical analysis is the most popular but fundamental analysis is the better kind because it looks at a variety of factors to help you make good decisions. In this article, we're going to look more closely at fundamental analysis and see what you want to look at if you want to perform good fundamental analysis.
Start at the top: Find out how the economy as a whole is doing. Is it good? Is it rough? Is the current situation going to last for a while? Don't look just at the economy of the country your target stock's company is in... don't forget to look at the countries where the company does a majority of its business. A strong economy in the US, for example, won't necessarily save a company who exports a majority of its products to Japan... if their economy tanks. Consider government decisions like fiscal and monetary policy.
* Visit www.federalreserve.gov and the sites of the individual banks to get a handle on the economy.
Drill down: Now that you've got your finger on the pulse of the economy, drill down to just the investment world, which can drive the economy. Is the Dow Jones rocky right now? Is the S&P 500 trending upwards? Is the NYSE dipping? Looking at exchanges and indexes will help you get a handle on the investment world. If you're looking at buying bonds, remember that they are influenced by interest rates.
* Visit www.standardandpoors.com and www.dowjones.com to see how the investment world is doing.
Industry analysis: Now it's time to turn your attention to the general industry in which your target stock operates. If they fabricate steel for automakers, don't just look at how other steel fabricators but also consider how automakers are doing. Consider, also, their suppliers. If you are looking to buy stock in a home building company, consider the price of lumber. Is it going up or down? If it goes up, will that put a squeeze on profits?
* Visit http://finance.yahoo.com/.
Company analysis: Next, turn your attention to the company itself. Who is the management team and what is their experience in the company and the industry? What is the financial history of the company itself? Check to see if they serve only one industry or several because the diversity of several clients among different industries will help to weather economic downturns. How is the company perceived among the buying public?
* Visit http://finance.yahoo.com/ and browse for the company and visit the company's website.
Fundamental analysis seems like a lot of work at first... and it is... but it won't always be that way. Spend a few hours getting to know the information then just a few minutes a day monitoring it.
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