People want to know how to invest in the stock market and make money. This is a really important question for everybody who is involved in stock market investing. There are different ways to invest money in the stock market. The question is how to invest wisely and make our online trading & investing activities profitable.
There are generally two ways to invest money in the stock market. Two different approaches. One is a fundamental approach, which is based on detailed study of a company’s so called “fundamentals” i.e. economic results and business development. This type of approach is based on the assumption that a good company has its own fair value and it pays to have companies with good value in a portfolio.
The second option is a technical approach. This one is based on detailed analysis of price development on stock price charts. This type of online trading, investing approach expects that it is not necessary to study detailed economic reports and estimate business development to know how to invest in the stock market and make money.
When I started learning how to invest in the stock market 10 years ago I thought about both ways to invest money, using fundamental or technical analysis. Finally I decided to use technical analysis, as I found that using fundamental analysis has several flaws.
Fundamental analysis is not ideal way how to invest in stock market
I owned and ran a private company before I started with stock trading. I know how to prepare and read economic reports of any business. But to really understand any business one has to study it a lot. Any investor must spend a lot of time reading and analyzing many company reports. And these reports also do not tell anything about the future. They only represent previous results.
There are plenty of companies available for online trading and investing in US stock markets and also in other international markets. It takes a lot of time to study the materials of all companies in detail. You can do it properly and then you could find that there is no spare time to make real investment.
We, as private traders and investors, are only individuals. We cannot produce so much work like a huge staff of investment funds or asset management companies around the world. We cannot compete with them in this area. But do not worry, we have other advantages.
How to invest wisely using fundamental analysis
So the question is how to invest in the stock market if we also want to use some principles of fundamental analysis. I personally think that there are only few ways to do it.
The first one is to make analysis as simple as possible. The only option is to select the most important parameters from economic reports and check and analyze them. If you want to find some global macro opinion check only the best stock trading sites that you will read.
I personally do not do fundamental analysis of individual companies, I use other options – mostly stock chart analysis and global macro research – as my primary tools.
But if I were forced into fundamental analysis I would to check this one parameter. I want to see positive cash flow and positive cash flow development. Cash is the life blood for every company. A company without cash cannot do anything. So it pays to check how cash flows in and out of the company.
It is also important to check future possible cash flow changes, as they will have a direct impact on future results of the company.