Selecting Stocks for Investment Purposes

The selection of stocks for investment purposes requires conducting analysis in order to determine the most profitable stocks. There are two most common schools of thought that are utilized in conducting analysis for investment purposes are fundamental analysis and technical analysis. While some investors utilize fundamental analysis, others prefer to utilize technical analysis and others conduct both fundamental analysis and technical analysis. For instance, Warren Buffet conducts fundamental analysis whereas George Soros utilizes technical analysis for investment decisions (Chauhan, 2013). Each of these renowned investors are successful in their investments through the use of the different analysis. The use of the different methods for selecting stocks for investment purposes is attributable to the unique attributes associated with each of these analysis procedures.

Fundamental analysis is a stock valuation technique that utilizes economic and financial evaluation to forecast the movement of stock prices (Badami, n.d.). When conducting fundamental analysis, the investor considers various factors including a company’s financial reports as well as non-financial information. Some of the non-financial information that is taken into consideration include approximates of the growth of demand for a company’s products, changes in government regulations,... Chauhan (2013) state that fundamental analysts believe that the most suitable indicators of the intrinsic or fair value of a stock.
On the contrary, technical analysis is a valuation method that involves predicting the future financial price movements of a stock based on the past price movements (StockCharts, n.d.). While it does not generate absolute forecasts regarding the future, technical analysis provides suitable information for investment purposes. In this regard, technical analysis helps investors to expect what is more likely to occur to stock prices over time. When making assumptions regarding the future stock price, investors consider the fundamentals of the underlying company. The three basic assumptions of technical analysis include the stock market considers everything while fixing the price, history repeats itself, and movement of stock prices is governed by principles of demand and supply (Chauhan, 2013).

The most suitable approach for selecting stocks for investment purposes is a combination of fundamental analysis and technical analysis. A combination of this strategy is the most appropriate approach since these valuation methods provide different information to guide investment decisions. Even though these techniques are considered as opposing approaches to evaluating securities, they have been utilized by many…