Stock Analysis: Fundamental vs Technical

Stock Analysis:  Fundamental vs Technical

So, you've decided that one of your New Year’s Resolutions is going to be investing in stocks.  Learning about how to analyze and value stocks is a lesson that pays off tremendously over the course of an investing life. Of course you will have to do your homework first.

Stock analysis can be broken up into two camps: fundamental analysis and technical analysis.  While many people will get caught up in which is "better," first we need to understand what each one is.

Fundamental Analysis

Fundamental analysis looks at the overall health of company: analyzing information from their financial statements as well as anyplace else you can get information about the general well-being of the stock. You’ll be trying to determine whether it appears they have done well in the past and will continue to do well in the future. 

Fundamental analysis typically starts off by looking at the company's numbers. We've talked about where to find out a company's earnings, and there are many other financial ratios you can check out to get a general idea of how a company is doing.

You can also get involved in more subjective measures like evaluating the company's products and leadership. Many fund managers, for example, look at the track record of key corporate officials when deciding their outlook on a particular company. This can also include information about the company's strategy and positioning. All of these factors compose the fundamental picture.

Technical Analysis

Technical analysis has less to do with whether the company is "good" and more to do with what investor sentiment and trends are. Generally the key tool of technical analyses are charts and graphs. This kind of analysis focuses primarily on whether or not it's a good time to sell or buy a stock rather than whether the company is a quality company.

While debates will rage about which kind of analysis is "better," this is in many ways like asking whether a hammer is better than a screwdriver. Both are tools with given purposes and are more useful in certain situations. As the name suggests, however, it is probably a good idea to start by learning about fundamental analysis, since that will give a good overall framework with which to understand a company; but don't be afraid to learn about technical analysis as well.

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MoneyCone's picture

MoneyCone wrote:

Wed, 01/05/2011 - 15:52 Comment #: 1

For short term investing Technical analysis is a better bet, for long term I would go with Fundamental analysis.

Of course, neither can save a company like Enron! (They cooked their books, so the fundamentals looked strong while they were actually sinking).

Excellent post Jessica!

Shaun's picture

Shaun wrote:

Thu, 01/06/2011 - 00:36 Comment #: 2

Great post Jessica,

I would really like to spend some time this year becoming more familiar with stocks and maybe buy a few. I have to admit that I've always stayed away from the stock market because I'm sure I'd end up staring at share prices for hours on end! I'll just have to get up the courage and go for it! Thanks for the tip.

Jessica Schmeidler's picture

Jessica Schmeidler wrote:

Thu, 01/06/2011 - 01:30 Comment #: 3

@Money Cone: Yep, poor Enron. They thought they were cooking their books; turned out they were really just cooking their own goose. ;)

@Shaun: Start here. Hehe.

Weekend Reading 1/8/2011 — Dividend Monk's picture

Weekend Reading 1/8/2011 — Dividend Monk wrote:

Sat, 01/08/2011 - 11:11 Comment #: 4

[...] Stock Analysis: Fundamental vs. Technical Momvesting posts an article describing two ways to analyze stocks. [...]

BeatingTheIndex's picture

BeatingTheIndex wrote:

Sat, 01/08/2011 - 13:22 Comment #: 5

both methods are useful but fallible ie don't bet the farm on neither. Having said that, make sure you identify your proper risk level and most important your ability to watch your investments in red and stick to the course based on your research.

If you're new and looking to step into the world of stock picking, go with indexed funds and keep only 10% of your $ to test the water with your stock picks.

Weekend Edition: More Pain for Natural Gas Producers in 2011's picture

Weekend Edition: More Pain for Natural Gas Producers in 2011 wrote:

Sat, 01/08/2011 - 14:24 Comment #: 6

[...] MomVesting: Stock Analysis: Fundamental vs. Technical [...]

Jessica Schmeidler's picture

Jessica Schmeidler wrote:

Sat, 01/08/2011 - 15:50 Comment #: 7

@BeatingTheIndex Thanks for sharing the additional information. That's great advice!

My Own Advisor's picture

My Own Advisor wrote:

Sat, 01/08/2011 - 23:13 Comment #: 8

Nice overview Jessica.

What's your take on these methods? Will you use one? With you use both? Neither?

Money Reasons's picture

Money Reasons wrote:

Sun, 01/09/2011 - 08:22 Comment #: 9

Great writeup on the 2 approaches. I'm more in the fundamental camp.

Weekend Reading: The New Year Begins | Invest It Wisely's picture

Weekend Reading: The New Year Begins | Invest It Wisely wrote:

Sun, 01/09/2011 - 18:00 Comment #: 10

[...] Stock Analysis: Fundamental vs Technical (MomVesting) [...]

Canadian Finance Carnival #23 – Canadian Finance B's picture

Canadian Finance Carnival #23 – Canadian Finance B wrote:

Sun, 02/13/2011 - 09:53 Comment #: 11

[...] at MomVesting presents Stock Analysis: Fundamental vs Technical, saying “Learning about how to analyze and value stocks is a lesson that pays off [...]

Mcx Tips's picture

Mcx Tips wrote:

Tue, 09/27/2011 - 09:20 Comment #: 12

I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I'll love to read your next post too.


Mcx Tips

Christa Palm's picture

Christa Palm wrote:

Wed, 09/28/2011 - 17:57 Comment #: 13

Thanks, MCX!

Everything You Need to Know about Stocks | MomVesting's picture

Everything You Need to Know about Stocks | MomVesting wrote:

Thu, 01/19/2012 - 21:48 Comment #: 14

[...] Ready to take your stock analysis to the next level? Learn about two options: fundamental vs traditional stock analysis. [...]