Stock Market Strategies: How to Analyze and Value Stocks

When entering the stock market, you will most likely get all sorts of offers from people who call themselves “financial experts”. There are lots of times when they offer good advice, but take note that they are not always correct.

The stock market is considered “unpredictable” for a reason — even the best people cannot always predict what will happen next.

Note as well that not everything that is given on the Internet is reliable advice — especially those in forums. Big publications and networks such as Bloomberg will carry weight, however, so it is important to always check the credibility of your resources.

When researching for stock advice, always make sure to look at multiple resources, and to consult different people. You will get conflicting information sometimes, but it will be up to you to weigh the facts and figures presented by each.

It may also be important to attend workshops and seminars by well-known investors and groups. I first learned about the stock market from a half-day seminar back in 2012, and I have come a long way from there!

Always remember what Benjamin Franklin said…

“An investment in knowledge pays the best interest.”

In this article, I will share with you some strategies and tips that you can use when investing in the stock market.

Stock Analysis

Generally, stock analysis is the term used to refer to the way the market (or a part of the market) is studied. This is done in an attempt to predict how a stock, sector, or the entire market will move in the future. There are two kinds of analysis:

1. Fundamental Analysis

This is the way a stock is studied by looking at the factors surrounding it — economic, financial, etc. Basically, one who does fundamental analysis will study everything that can affect the value of the shares.

2. Technical Analysis

This is a kind of analysis that attempts to analyze the future movements of the stocks through the activities of the traders. This includes the movement of the stock prices and the number of orders for each stock.

These things may seem complicated to the ordinary person, but they can be easily learned. I learned fundamental and technical analysis skills from handling workshops about the stock market — including the much-acclaimed Stock Smarts series by Marvin Germo.

Further knowledge was developed by attending stocks and investing-related forums. I also attended stock holders’ meetings hosted by the online stock broker I have an account with.

On Choosing Stocks

Despite stock analysis being the realm of experienced investors, it also pays to know how to study stocks. Here are a few questions you should ask yourself when choosing a company to buy stocks from.

  • Is the company behind the stock supported by a good business model?

This asks you to look at how they do business. If the company sells food, for example, it’s good since everyone buys food everyday. If it sells Christmas trees, however, it has a seasonal business model and may not be a good one to invest in.

  • Are there issues surrounding the company?

Negative issues like scandals can cause the stocks to decline.

  • Is the industry the company belongs to still profitable?

For example, you should choose a company that sells mobile phones over one that sells telephones.

  • Did the company have good profits?

You can research on the earnings of the companies to see if they are gaining or losing. You can also take a look at the market for the company, from which they derive the profits from. For those just starting out in investing, it is dangerous to buy the stocks of a company that serves only a small number of customers. For example, a company that serves only senior citizens may be a little shakier than a company who serves people of every age. The latter’s stocks tend to be better for investors.


Valuing Stocks

If you tune in to the news, you will notice that the values of stocks change daily. This is the result of different forces in the market. We have already mentioned that the main reason for price change is the “law of supply and demand”.

While understanding the concept of supply and demand is relatively easy, there is a more difficult process involved in understanding the different reasons why a person prefers one stock over another. Different investors have different ideas and strategies on this matter.

Generally, the movement of a stock’s price is an indication of how confident investors are with the company behind the stock. It does not matter if the company is really rich — that does not automatically make the price of its stocks higher. Even huge companies can have a really low stock price if the investors think that it is not doing a good job of growing.

And how do investors determine if a company is growing?

Its earnings will be a good measure. The more profit that a company makes, the more confident the investors will be. All companies that offer stocks are required to tell their investors how much they earn. This happens once every three months (also called the earnings seasons).

At this time, analysts make their predicted values of the companies based on their earnings. When the future earnings exceed these expectations, the price can jump up. If the earnings of the company are below the predicted levels, the price will drop.

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