Right selection of stocks in investing is crucial to make money. One may follow different approaches towards stock selection but it all boils down to consistency in analysis, stock-picking and ultimately allocation – these 3 are the key ingredients of successful equity investing.
Conventional wisdom suggests two primary ways to analyse a stock. Fundamental analysis, which aims to ascertain the fair value of a business (stock). It takes into account quality of business of a company, demand and supply forces, pricing environment, and growth rates among other factors. Technical analysis, which assumes that the elements that impact movement of markets are easily predictable and all information about a stock is captured by the price of a stock at that moment in time. Technical analysts evaluate stocks on the basis of price and volume recorded on the stock exchanges. These two styles of analyzing stocks are applied in the following way: successful investors prefer fundamental analysis to ascertain the valuation of the stock and technical analysis to time the entry into and exit from a stock.