MANILA, Philippines - Investing in the stock market is a continuous learning process. As the stock market remains fluid with cycles that come and go, there are plenty of opportunities that active investors can take advantage of with the use of proper skills and tools. Modern day investing also involves understanding that you need further knowledge in order to stay ahead.
Today, the two most commonly used techniques in making stock investment decisions are Fundamental and Technical analyses.
What is Fundamental Analysis?
Fundamental Analysis is a method that determines the quality and value of a stock. An analyst uses this technique in computing a company’s fair value, which is what you take into consideration when buying and selling its stock.
Fair value is the potential target price of a stock over a specific period of time. Basically, it’s used to compute the future price of a stock, which can help the investor decide if it’s a good buy at its current price.
For example, say the projected fair value of Megaworld (MEG) at the end of 2015 is PHP 6.82. Looking at its current price at PHP 5.82*, this could be a good entry price, since you could potentially increase the value of your stock by a full peso or 20% in a year.
One of the most common ways of doing fundamental analysis is the top-down approach. This involves overall assessment of the macro-economic indicators that can affect a company’s profitability, such as inflation, interest rates and currency fluctuations. It’s also important to examine the industry that the company is under and other factors like government regulation, competition and general demand and supply. Lastly, it involves evaluating the company itself by analyzing its financial reports, potential earnings, management style and policies, growth projects and the like.
Most people find analyzing all the factors that could affect stock prices intimidating. It can put people off from becoming active investors, thinking that only economists or market analysts can do it well. Other times, most people just don’t have the time review all of these factors. COL Financial has simplified the analysis for its clients through its research offerings, making it accessible for everybody. In addition to that, COL also provides an additional recommendation by stating a Buy Below Price, which is the comfortable level to buy the stock relative to its risk. Regular reports are published on a daily, weekly and monthly basis to keep investors well informed on how to best handle their stock investments.
What is Technical Analysis?
Technical Analysis is a method that focuses on the price and volume pattern of a stock within a certain timeframe, ranging from days to years. The history of price movements is charted and stock price patterns are identified. These trends are considered when buying and selling a stock.
There is a mix of tools that a technical analyst can use, but the two most common concepts in technical trading are support and resistance. Support is the price level at which the stock is holding ground as investors usually buy at this rate preventing a decrease in stock price. When looking at a chart, support levels are usually located at the bottom. Resistance is the price level that the stock is having a hard time surpassing as selling usually occurs here. It is normally observed at peak points. A technical trader tends to buy closer to support levels and sell towards a resistance to maximize trade profits.
A comprehensive technical guide is available to COL customers and is updated on a regular basis. It contains recommendations that can be easily applied to market trades, together with various minor and major supports and resistances crucial in timing the market.
Which One Should You Use?
The sensible answer is to capitalize on ALL information and tools available. A smart investor would incorporate both methods to come up with a solid investment strategy.
Fundamental Analysis guides you in identifying which companies are good investments. Meanwhile, Technical Analysis helps you in timing market entry and exit by spotting stock price trends. By using both techniques, you can maximize on good market opportunities.
At the end of the day, what’s key is to not go into a trade blindly. Take the time to assess your investment decisions with a sound investment plan. A well-informed investor is ultimately a successful investor. – Rappler.com
*Price indicated is as of publishing
For more information on COL Financial products and available seminars on stock investing, please visit www.colfinancial.com
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