Analyzing Stocks: The Fundamental, Quantitative And Technical Analysis Methods

Starting an investment strategy may seem a daunting task, especially if you are new to the idea. One of the most important aspects of beginning an investment plan is researching and analyzing companies before you purchase stock. There are three important methods used to analyze stock: fundamental analysis, quantitative analysis and technical analysis. Each of these methods offers its own benefits and drawbacks. Despite this, knowledge about a company’s past and present are important before spending your cash. Using these methods together, you can project what a company’s financial future may hold.

The Fundamental Analysis

Investment decisions rely heavily on sound information. Investing is a process that requires some risk tolerance. Despite this, researching and analyzing stocks and the companies behind them can reduce the amount of risk associated with your purchase.

The fundamental analysis method, while very broad, essentially entails reviewing the financial records of a company prior to making investment decisions. For example, a company’s financial statements reveal interesting and useful information. The process provides a view into the future performance of a company through the analysis of balance sheets, revenue, assets and liabilities.

The Quantitative Analysis

The quantitative analysis occurs once other financial information is gathered. Quantitative analysis involves measurement. The process can predict events, such as changes in share pricing, or performance evaluation. This method requires highly complex statistics and mathematics to create reality from a set of numbers.

The Technical Analysis

Technical analysis employs methods to determine how a stock will perform in the future. This method studies supply and demand, which oftentimes drives the value of a stock. This method also seeks to understand the market through an analysis of market psychology and historical trends.

Making the right investment decisions requires analysis of a number of factors, including risk tolerance, company performance and trends. The financial, quantitative and technical analysis methods each provide a different way to view a stock when considering investing. In addition, when the methods are used together, you arm yourself with data from multiple sources and perspectives. Investing may seem intimidating, but the right tools and knowledge can ease uncertainty.