Getting to know the stock market: What are fundamentals?

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Many have been found reluctant to invest in the stock market because of stories they heard from people about other people losing millions overnight on bad investments. Although it is true that there are a lot of people who lose millions there, knowing the fundamentals of a stock can be the difference between winning or losing in the stock market.

Fundamentals or fundamental analysis of a stock means getting down to the basics. Unlike technical analysis, which only focuses on a company’s stock price history and its fluctuations, fundamental analysis involves analyzing a company and identifying the true value of its stocks based on that analysis. Stock analysts in investment management firms, like Esplanade Capital, LLC and Legg Mason, Inc., look at the financial aspects of a company, which include revenues, expenses, assets, and liabilities.

Image Source: Telegraph.uk

 These financial aspects can tell stock analysts answers to these questions:

• Is the company profiting? 
• Can it pay its debts? 
• Is it posting revenue growth? 
• Is it in a good position to outmaneuver its competitors?

Image Source: Telegraph.co.uk

If the answer to all those questions is yes, it means that that company’s stock is a good investment, even when its stock price is down. In the long run, the stocks of a company with good fundamentals will always reflect the fundamentals.

Basically, it’s all just common sense. If a company is doing well, earning well, and have been in business for decades, why would people be scared of buying its shares?

Interested in starting an investment? This website has information that can help you out.