Fundamental Analysis For Dummies, 2nd Edition

Chapter 2

Getting Up to Speed with Fundamental Analysis

IN THIS CHAPTER

Comprehending what fundamental analysis is and how it can help your portfolio

Finding out what's involved in using fundamental analysis

Comparing fundamental analysis with other ways of selecting investments

Getting an understanding of what tools are needed to analyze an investment

Try to remember what it was like being a beginner at something you’re good at now. Whether it was karate, ballet, or basketball, as a beginner, you may have been tempted to bypass all the basics and go straight for the advanced techniques. It’s natural to want to try breaking boards with your bare hands or doing pirouettes or slam-dunks on your first day of trying something new.

Good coaches, though, encourage you to slow down and start from the very beginning. It’s almost always best to start working on the basic karate stances, ballet poses, and basketball dribbling before even thinking about moving to the showy and advanced aspects of each sport.

Beginning investors often experience a similar overconfidence at first. Many hope they can skip mundane things — like reading accounting statements, understanding basic financial ratios, and calculating discounted cash-flow models — and get right to the exotic rapid-fire trading. It’s tempting to think you can trade complex securities, dabble in highly volatile stocks, and dart in and out of investments with ease right away. Realistically, though, investors usually lose money when they ...