Why is research necessary while purchasing shares?

A stock market is a place where are a number of people who have made a lot of money, and also there are people who have lost all their money. The difference is that few researched and then entered the stock market and other few just jumped in because their neighbor, friend or relative had made a lot of money. At the end of the day, without proper research, you are bound to face the consequences.

Why should one research before buying/selling stocks?

If you are an investor it helps you find details before you invest in any security. Fundamental research is to analyze the stock whereas technical research is to value the stock on different parameters.

By research only you can make some assumptions about the value of stock and get a rough idea of the future performance of the stock. Research helps you to ensure that you are making the right investment, at the right price and at the right time so as to get maximum returns. It is your hard earned money and so you must have a reasonable knowledge of where and what you are investing in.

1. Fundamental research

Fundamental research involves analyzing the financial statements, unique position in the business, competitive advantage it has over its peers and quality of management etc. It is evaluating securities depending upon the future growth prospects and attractiveness of the business.

For fundamental research one should look for

• Industry growth of the company you are about to invest in.
• Competitive advantage the company enjoys and ability to gain more market share over its peers.
• Revenue and earnings growth company attained over the last few years.
• Quality and capabilities of management board members.
• Financials and valuations ratios like P/E ratio, margins, return ratios, etc.

2. Technical research

It is the study of the past price movements to approximately predict the future price trends. It helps in identifying the beginning of a sharp rise or fall in the share prices.

There are various charts used by technical analyst to draw his conclusion. They are candlestick chart, bar chart, and line chart.

How is technical analysis advantageous?

• It is not affected by any news or occurrence of events that take place regarding the company.
• Many announcements like financial results, new technical discovery, high-rank executives exit or entry, change in government rules, etc. that affects the shares price of the company. An investor who is following technical analysis gets an early signal on price movements who many a time does not know the exact nature of information.
• Technical analysis depends on mass psychology which changes and fluctuates sometimes.
• Charts help to figure out trends that are in vogue. It helps to depict price patterns and share volume being traded.
• Technical research helps to let us know the value at which stop loss can be applied to particular shares; this saves the investor from a bigger loss in the future.
• It is more useful for short-term traders/investors.

We use both fundamental as well as technical analysis of different companies before providing share market tips to our clients. To know more please fill in the free trial form or contact us for the services that we provide.