by Ian Farquharson

Created on: October 27, 2009   Last Updated: October 28, 2009

Investing in the Stock Market

The last couple of years have been difficult for the world economy, with most countries going into recession and stock markets around the world taking a tumble. During this time investing in the stock market has been a risky business, especially for those with little experience or who did not have a plan in place to deal with the downturn.

Investing in the stock market, like any other business venture, requires some degree of training, experience and hard work to be successfully implemented. When starting out, rather than just jumping in feet first with your hard earned money, it makes sense to try and educate yourself with some basics and to try and form a plan of action. In this way you can invest in the market in a business like manner and, although it cannot guarantee 100% success, some hard work and education will help to put the odds in your favor.

The first step in your education is to understand fundamental analysis. This is the analysis of the financial situation of a company, preferably carried out over a number of years. It does not require an in depth analysis of the companies accounts, but at least get a grip on some of the basics such as turnover, net profit, profit per share, assets and liabilities. The best way I have found of doing this is with an excel spreadsheet covering at least 5 years or more of the companies financial details.

Annual accounts for most companies can be found on the internet these days and if not a call to the company should secure them. If you prepare a spreadsheet it can show how the company is doing and how this compares to past performance i.e. is turnover increasing, are profits growing over then years, what is the net asset value of the company etc. These type of details show whether the company is fundamentally sound and this is your first line of defense for investing. Buying a fundamentally sound company does not guarantee success, but it does increase your chances.

Secondly, when you have a list of sound companies, use technical analysis to track the share price. Many see technical analysis as a black art, but it is simply another tool to help in your stock market decisions. There are many types of technical analysis available including, amongst others, point and figure charts, relative strength, bar charts and candlestick charts.

The best way of using technical analysis is to find a method that you are comfortable with and understand and then stick with it and try and master it.

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