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Analyzing investments: The basics

Before investing in securities such as stocks and bonds, most people do extensive research to make sure they are getting the best bang for their buck.

Video Transcript

- The road to wealth is seldom a matter of dumb luck. To choose securities that will make a good investment, you'll need to know the basics of investment analysis. It's not as daunting as it sounds. Just think of it as shopping for bargains.

Most people do extensive research to make sure they're getting the best bang for their buck. Investing in securities, such as stocks and bonds is no different. The main goal of security analysis is to calculate a securities real value from analytical data.

Just because a company's stock is rising or seems to be a great bargain doesn't make it so. Investors can use security analysis to determine whether a securities market price is over or under its actual value. Investors buy undervalued securities at low prices and hold on to them in hopes that someday, the market will realize the company's value and increase the security's prices.

Many factors go into the fundamental analysis of a security. You can evaluate securities by looking at company stock, dividend-paying ability, or growth potential. Technical analysts use pricing security and trading history to identify the strength and direction of market trends. They also use charts to measure past prices, volume, number of issues traded in a day, and price movement trends.

You can start today. Select some companies you're interested in. And read their dividend, price and earnings, and other information online. Scope out their annual reports. And read the financial statements. Also, look for the stock information and browse the various charts presented. Stay financially fit, friends.