If you want to become like Ace investor Warren Buffet, then the fundamental stock analysis is your topmost priority. Understanding of the business models and its growth prospects lets you easily take a decision, whether to invest or not. Before you invest in any company, you need to activate all your senses and keep a hawk eye on all the activity. Focussing on micro and macroeconomic factors may also impact your investment value.
As stocks move up and down, so you need to avoid the daily short-term movement and focus on the performance of the company. After you do the fundamental stock analysis, just invest in that stock and sit back tight. If a company is fundamentally strong and has great future prospects, then eventually its value will go up and so your investment value.
Investment in stock market is very risky but with a little bit of knowledge, you can easily minimize your loss. Although, high risk is always associated with high return and so you need to remain patient. By doing fundamental stock analysis, you can take a calculated risk to generate awesome wealth for yourself.
Don’t be a Speculator or Gambler in the stock market rather invest like a pro. Analyse and understand the business first and then put your hard earned money in it. Try to ignore the short-term market volatility as it may increase stress level.
Fundamental Stock Analysis – How to do?
Imagine someone asked you to lend some money for expanding his business and in return, he will pay you interest. Will you just lend him without knowing him or his business? So before you lend him, make sure that you are giving your hard earned money to the right person. Knowing the person’s credit history, background, lifestyle, and other key factors always keep you on the safe side.
Likewise, you also need to do some rigorous study before you invest in a stock. Don’t just blindly invest. I did when I was an amateur investor. It may take some time but worth it before you just dive into the world of stock markets.
Having said that, you need to study the following fundamental stock analysis things and create a checklist for yourself.
Management’s background and their business ethics.
Keep a tab on the background of the management, their experiences, and education. Whether they are capable to not only run the business, instead take the business to the new heights. Study their business ethics and how they operate and find if the management involved in any scams, or unfair business practices.
Check Financial Health
Study and analyze any company’s earnings and its growth, asset and liability, cash flow, dividends, financial ratios and other financial things. You can easily do so and all the above data can be found in any online stock market portals like moneycontrol.com or investing.com.
Try to extract key things from Annual Report that lets you analyze the financial health of the company. All you need is to study the three most important financial reports. These are P&L, Balance Sheet, and Cash Flow statements.
As a retail investor, all you need is to understand the business better and find out its valuation that help you to take an investment decision. Be realistic on your approach as investing in stock markets feels like riding the roller coaster. After investing in a stock, just sit tight and expect realistic CAGR of around 15-20%.
Focus on your portfolio for long-term and must not add more than 20 stocks. When you stay longer, money will get multiplied by many folds. Instead of following other advises or suggestion, make your own rule and stick to it.
I keep on updating this post and adding more new tools and features for fundamental stock analysis. I hope you enjoyed reading this.
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Published on: May 15, 2018