Q: What is fundamental analysis and how do you use it?
A: Fundamental analysis tries to find the value of a security by looking at the basics of a company's operations, products, and management. Factors that play a big role are trends in sales, profits, and product development. How well the company is positioned in the marketplace, its relation with competitors, and the broader forces in the economy are also big components of fundamental analysis.
When most people begin a discussion about a company's stock, they naturally focus on fundamental factors: What products does this company make? How profitable are they? Do they have a lot of competition? How good is their management?
In fact, fundamental factors like these are so important they've made billionaire investing guru Warren Buffett one of the most successful money makers of all time.
Because things like sales, profits, and products take time to develop and mature, fundamental analysis is best suited to investors interested in longer-term option plays -- such as LEAPS (Long-Term Equity Anticipation Securities) -- and stock buyers looking to hold their position for a while. However, short-term traders have found some fundamental analysis useful as well.
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Hallaman Market Research
