Stock market is very uncertain to make money. Companies with solid fundamentals and bright prospect are required to make safe investments. Before a fund manager pick a stock of a company, research team does a rigorous study of the company’s financials and past records. Every aspect & parameter of the company is studied before the stock is inserted to the fund’s portfolio.
Two stock-picking methods are used in research and forecasting of the future growth of the Stocks. These two stock-picking methods are as follows:
- Fundamental Analysis
- Technical Analysis
Fundamental Analysis: Fundamental analysis is used to estimate fair market value of the stock of a company. Fundamental analyst evaluates stocks by measuring its intrinsic value. Fundamental analysts measures the intrinsic or fair market value of the stock by studying the assets, profits, business trends and management of the company; studying the condition of overall industry and economy.
If the price of the stock is lower than its fair market value then you should buy the stock and if the price of the stock is higher than its fair market value then you should sell the stock or should not buy it.
As this method only focuses on valuations so it might happen that overvalued stocks can get more over-valued and undervalued stocks can stay undervalued.
Technical Analysis: Technical analysis uses statistics of market activity and a stock’s historical performance to evaluate securities. Stock charts are used in this analysis to identify patterns and trends that can suggest the future performance of a stock.