Picking the right stocks and shares to invest is obviously the goal of all investors and it can be both very easy and very hard. In a rising (or Bull) market it is sometimes possible to pick just about any share from one of the major global markets and simply ride the Bull’s tail as the market in general rises.
Of course it is not a simple as that in practice. Even in generally rising markets some shares will do better than the market average and some will do worse.
There are a number of ways to approaching choosing a share to invest in.
Fundamental Analysis
Fundamental analysis looks at the business, it’s accounts, earnings and prospective dividends. In addition management perfomance is taken into account along with comparisons with direct competitors and the economy as a whole.
Most calculations are based on the company accounts and if analysed correctly can reveal whether a company’s share price reflects its true value. The key is to pick a share that is undervalued at a point in time by the market.
This is often hard for the small private investor to do on their own and many therefore seek the advice of experts, be they financial advisors or brokers.
Technical Analysis
Technical analysis has grown in popularity and at it’s crudest level it ignores the underlying worth of a company. Instead technical annalists concern themselves solely with charts of recent movements in the share price hoping to spot trends or patterns which will indicate likely movements in the share price.
Ethical Investments
Whilst it is possible to argue that investors should focus solely on the numbers, there is no denying that a companies share price can be influenced by ethical concerns. Taken to some extremes the Green Lobby have been known to harass even individuals who are involved in animal testing and the like. Companies can also be boycotted on health (tobacco) or pollution grounds.
If you wish to avoid such risks it is important to understand the exact nature of a companies business and it’s related contracts.
At the end of the day it is up to the individual to determine what method best suits them and if in doubt consult expert advice. But it is important that you understand these methods in order to understand the advice given and act accordingly. As online stock brokers are quick to point out, shares can go down as well as up, so make sure you understand the risks involved.
One way to help you through the stock picking maze is to join an online penny stock newsletter.