Akin to the 3 teams in Pokemon GO, the world of investing is split into two factions, those who believe in Technical Analysis(TA) or Fundamental Analysis(FA) .
Technical Analysis is the art of studying price patterns in order to forecast the future price movements. Fundamental Analysis on the other hand, relies on studying the books of the company such as the Balance Sheet and Income Statement to gauge the profit and growth potential.
While both methods are proven to be successful for investors around the globe, I personally feel that a combination of both methods are able to produce stellar results for the retail investor like yourself! FA will aid you in making decisions on what to buy while TA tells you when to buy at the lowest point and sell them at the highest point!
What to look out for in FA:
1. Company has to have consistent profits and sales
-Make sure the management is capable in generating sales rather than being a one trick pony in their sales for that year.
- Cash is king
-Ensure the company has positive cashflow to cover the cost of their operations
- Company share buybacks or board of director purchases.
– Share buybacks occur because the management feels that it’s shares are undervalued and want to consolidate their holding. Similarly, the BOD will purchase shares back as they generally feel that it is undervalued and will appreciate in the near future.
- Quality of management
-A nation’s greatness depends on it’s leader. The same could be said for a company, what we are looking out here is the effectiveness of the management to maximise output with the given resources. Is the management looking out for shareholder’s interest or personal gains?
What to look out for in TA:
- Price is on an uptrend (150DMA has to be moving upwards)
-Prices always move in trends and you do not want to buy a stock that is falling, As the saying goes, never catch a falling knife.
-Signals are signs of potential movement, presence of heavy volumes affirms it.
- Reversal Signals (catching the bottom of a down trend)
– There has been a track record of certain reversal signals that indicated a bottom and start of an uptrend! But these are tricky and depends on your due diligence to find, it is akin to finding an empty seat on the peak hour train after an exhausting day! (Rare, but hey, it happens)
These are my stock selection criteria and I’ll be adding on to it as I go along in my journey towards financial independence. I will be doing a follow up and more in- depth posts on FA and TA separately.