Styles Of Investment - Fundamental Vs Technical Investment
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| Fundamental Vs Technical Investment |
Fundamental investing
A fundamental investor reduces risk looking for value and growth by looking at the financials of the company. The most important consideration for selecting a good stock for investment is the future earnings potential of the company.
A fundamental investor carefully reviews the financial statements of any company before investing in it. The fundamental investor also takes into account the outlook for the economy as a whole as well as the specific industry in which the company is involved. The direction of interest rates is a very important factor in fundamental analysis.
Technical investing
A well-trained technical investor invests on the emotions of the market and invests with insurance from catastrophic loss. The most important consideration for selecting a good stock for investment is based on the supply of and demand for the company’s stock. The technical investor studies the patterns of the sales price of the company’s stock. Will the supply of the shares of stock being offered for sale be sufficient based on the expected demand for those shares?
The technical investor studies the pattern of the history of the company’s stock price. A true technical investor is not concerned with the internal operations of a company as a fundamental investor would be. The primary indicators the technical investor is concerned with are the mood of the market and the price of the stock.
One of the reasons so many people think the subject of investing is risky is because most people are technically operating as “technical investors” but don’t know the difference between a technical investor and a fundamental investor. The reason investing seems risky from the technical side is because stock prices fluctuate with market emotions.
The difference between the two investment styles is dramatic. The fundamental investor analyzes the company from its financial statements to assess the company’s strength and potential for future success. In addition, the fundamental investor tracks the economy and the industry of the company.
A technical investor invests from charts that track the price and volume trends and patterns of the company’s stock. The technical investor may review the put/call ratio for the stock as well as the short positions taken in the stock.
While both investors invest from the facts, they find their facts from different sources of data. Also, both types of investors require different skills and different vocabulary. The frightening thing is that most of today’s investors are investing without technical or fundamental investor skills. Most new investors today do not know the difference between a fundamental and technical investment.
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