Understanding Fundamental Analysis | Dhanashri Academy

Stock Market Fundamentals - Understanding Fundamental Analysis

A lot of people like to talk about getting back to basics and making stock market investing as simple as possible, so that more people can feel confident about participating. Although you're probably a little overwhelmed by all the terminology and strategy that is involved with making smart decisions in the stock market, it's important to remember that much of the success that experienced investors enjoy is simply a result of them being able to restrain their emotion and allow common sense to guide their decision making. Of course, investors also get a little help from stock market fundamentals.

If you pay attention to any of the television stock picking shows, or online analysts, you'll hear them constantly referring to the strong fundamental attributes of a certain security. It's important for you to know what they mean by this, and how important stock market fundamentals are in relation to other attributes, because some analysts will swear that technical merits of a certain stock are the only thing that matters, and you should just ignore the fundamentals all together. Although you might find these concepts foreign to begin with, it's important to remember that they are not solid rules for trading, just techniques that should be combined into your own strategy.

First of all, it's important for you to realize that when analysts and fund managers are talking about stock market fundamentals, they are referring to an element of fundamental analysis, which is the method of evaluating the market by looking for potentially significant factors that can affect the value of the stock, outside of its current price movements. Fundamental analysts don't pay any attention to the trading patterns of the stock, but are instead concerned with outside influences that might be more or less predictable.

Researching stock market fundamentals means that you are concerned with creating an entire profile of the company itself in your mind, from employee experience to financial history. By assembling all these potential factors in their rightful place, investors can start to understand a realistic image of the value that the public and market will associate with the company's stock. The most important elements that a fundamental analyst will focus on include: cash flow, potential return on assets, conservative gearing, the history of profit retention as a basis for funding future growth, and finally, the soundness of capital management so that shareholder earnings and returns can be maximized.