Selecting Stocks Through Fundamental Analysis
Warren Buffett, one of the greatest investors of our time, had two rules when it came to investing. The first rule was not to lose money. The second rule was not to forget the first. Warren Buffett laid a framework to invest in quality companies, have competitive durable advantages, and that are selling at a substantial discount. Much like finding a diamond in the rough, investors sift through a company’s financials in order to find suitable investments. In order to do this, you must be oblivious to the current popular trends, especially to what the internet/news is ranting and raving about the market. Your strategy is for the long term (7+ years), and to collect the dividend income associated from holding these companies. From dividend investing you profit in two ways, first you collect the dividend income from holding a stock, and second you can sell the stock at a higher price from the price you purchased it. It is essential for an investor to be able to sift through a company’s financial statement in order to select companies that have good growth potential and also will be able to pay out those lucrative dividends for many years to come. From that, you will know if the company whose stock you are buying is a good company or not.
All of this information is free to view publicly on sites such as Yahoo Finance. From there you can have access to the three statements that show a company’s health: Balance Sheet, Income Statement, and Statement of Cash Flow. From there, you have the data to look at the health of a company.