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Stock Market
Analysis

2. Stock Picking Strategy Simplified
Fundamental Analysis & Technical Analysis are two sides of a coin. They both
aim at identifying star stocks for your kitty. But there is a world of difference
between the two. What should be your PICK?

3. Stock Picking Strategy Simplified
Investing virtually does not exist without experiencing the thrills of a roller
coaster ride in the stock markets. But the investor psyche is to enjoys the ups
in stocks without the downs. That’s not possible as no stock is immune to falling
prices. However, you can pick stocks, which have the potential to deliver higher
returns than the overall performance of the markets. Here is where stock
picking methodologies come into play.
Fundamental Analysis & Technical Analysis are the most common strategies
used for picking stocks. Both the methodologies aim at identifying front running
stocks which have the ability to beat the index. However, having said that there
are some key differences between the two.

4. Fundamental Analysis
Fundamental analysis is a method of evaluating a company’s stock based on its intrinsic value
and analyze the factors that might affect the stock price in future.
METHODOLOGY :
Fundamental analysis is done mainly by examining the company’s earning, industry trends,
competitors' performance, country's economic outlook, etc. In the market parlance, these are
called as fundamentals of a stock.

5. Technical Analysis
TIME HORIZON:
Fundamental stock views are long term in nature. It analyze various factors, which will
impact the stock price for a longer duration of time, which could run into few years.
Technical analysis:
On the other hand, only looks at the price of the stock. It is a statistical method, which finds
patterns and predicts future movements based on past market data.
METHODOLOGY:
Technical analysis, on the other hand assumes that these factors are already factored
in the price of the stock. Hence it focuses only on only past price movements and
market behavior to come to a conclusion.
TIME HORIZON:
Technical Analysis are short term in nature. They predict stock price movements for the
next few weeks or days.

6. End Users
Investors should ideally look at fundamental analysis of the stocks if they intend to stay
invested in a stock for several years. Traders, who look at booking short term profits or
intra day gains, typically follow the technical analysis of a stock.
So, if you are investing in stocks for meting your long term gains, fundamental analysis
should be your pick!
There is no standard formula for succeeding in the stock market. But identifying a good
stock is a must to create long-term wealth. Here are some factors that can help you
pick the RIGHT STOCK.

7. Value Investing
So now you know about stock market analysis. How does that really help you invest? These
investing philosophies will help you understand.
Value stocks are those, which are priced lower than the actual value of the company and its
assets. This implies that the stock has the ability to perform better in future and it could be a
good value for money. P/E ratio is a good indicator of value stocks.
The most common ratio used is the Price-to-Earnings or PE ratio. This is computed by
dividing the share price with the company’s earnings per share.
If the share price in comparison with its earnings per share is less than industry average,
then the stock is said to be undervalued. This means the stock is selling at a much lower
price than what it is actually worth.

8. Value Investing
In contrast, an overvalued stock is where the investor is paying more for each rupee the company
earns. This means, the stock’s price exceeds its intrinsic value. This often happens when
investors expect the company to do well in the future. A high PE in relation to the past PE ratio of
the same stock may indicate an overvalued condition, or a high PE in relation to peer stocks may
also indicate an overvalued stock.
However, as an investor you have to be very careful. Compare the fundamental value of the
stock with its historic values. If there is a sudden increase in valuation, there are high chances
that the price may fall to correct the mispricing. In case of a sudden fall in valuation, check for any
latest news about the company. It is quite likely that some new factor may have emerged that
may be detrimental to the company’s profits.
Since the PE is computed using the earnings per share for the year gone by, it is called a trailing
PE. This is not a perfect way to understand the stock’s value. For this reason, analysts often use
the forward PE, where the estimated earnings per share for the current or another year is used.

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