By Jim Rechenmacher

The search for investment information from the major houses which have a long history in the investment business usually involves reading and digesting the information from their team of analysts. But did you know that there are three types of analysis in this industry? Does your source use a style or combination of styles that you are comfortable with? Let’s have a brief look at each method.

1. Fundamental Analysis
The scope of this method is extensive. Included are information and statistical data from but not restricted to the short, medium and long term out looks of the industries in the economy and marketplace, the economy of a nation and/or it’s regions, the international economy including trading partners, the cost of borrowing and the ability to raise equity capital. Virtually all the information available outside the trading of the securities themselves is studied in one form or another.

If there is one factor to single out, however, it is the profitability of a company for that is the means by which it will service debt, pay dividends now and ever larger dividends in the future.

Companies that achieve this are the envy of their peers and continually sought after by investors which drives their stock price. Result, capital gain and dividend to the owner, the shareholder - you.

2. Quantitative Analysis
The use of computers, databases and a scientific approach to produce an objective stock valuation. This type of analysis includes the study of patterns in interest rates, the myriad economic variables available and industry valuation. The study of these patterns and understanding the reasons for them allows the potential or possibility to profit when the value varies. These methods are applied in economics, in fundamental analysis and in the third type of investment analysis, technical analysis to measure scientifically factors affecting investment decision making.

This requires the use of computers, mathematical modules and statistics. New technology allows analysts to store decades of information and use mathematical calculations repeatedly to test theories. The quantifying method has even been applied to market psychology all of which is to aid in determining the potential of profit for an investment decision.

3. Technical Analysis
The third analytical method involves the pursuit of information surrounding the history of individual stock price and of marketplace behavior. The goal of this type of analysis is the ability to recognize patterns after it has been charted. The amount of information can be staggering and is often not used by fundamental analysts who find it too voluminous or do not believe the “history always repeats itself” theory.

It involves the observation and data collection of trading volumes, and the number of stocks which decline or advance over variable periods of time. The recognition of patterns is believed to lend itself to the ability to predict stock price directions and take profitable advantage of this information. It is believed by technical analysts that the study of enough information will provide a look even into the mind of investors, that even their inability to learn from their mistakes makes it possible to predict their future behaviour and therefore the direction of the market.

So, there you have a thumbnail sketch of the three types of security analysis: fundamental, quantitative and technical. I would venture to say that very few analysts are restricted to one line of thought and that the combination of variables plus good old-fashioned footwork (ie: visiting the company itself, interviews of company officers, etc.) is what makes for good research and good advice. Add a little research effort on your part and you are in the starting gate ready for the games to begin.

Good Luck