Stock shares are part of the capital of a company. Owning shares means being a part owner of the company. As the company's value, the value of shares goes up or down daily. Why? That is explained in this article.

Having started with the remote century Dutch companies. XVI, the modern stock market exists as a means to finance business using money from investors. And history shows that it is worth being aware of the actions, since over the years, achieved much better returns than bonds and other investments. As demonstrated in a previous article, (see a simple investment strategy), the Standard & Poors 500 rose 5510% from the first day of the year of 1950 until January 6, 2009. What is an average annual growth of 7%, even taking into account that only last year lost 32%.
Over many years, investors and scholars have studied the behavior and actions but has not yet been possible to devise a definitive theory, you can fit it in one of two theories. The first argues that the share price - the price - depends on the economic value that the company is able to create, ie, its intrinsic value. To estimate the share price, according to this theory, socorremo us of fundamental analysis, as explained below. The second, by contrast, argues that the share price is essentially the movement of short-term, they are random and unpredictable, so to find the value of the prices we use charts and other statistical tools.

A theoretical approach to explain definitively the value of the price would be the equivalent of finding paradise on Earth. As this is not possible, the well informed investor can rely on two tests - the fundamental analysis and technical analysis - the way that the best guide in making their decisions. The objective of the investor is not hit 100% in their calculations, since this is impossible, but well-informed decisions and conscious.

Thus, the fundamental analysis is based on a thorough and comprehensive study on the forces that explain the price of the shares at a given time. As you can see easily, the fundamental analysis can be composed of many different aspects: the analysis of the economy as a whole, the analysis of an industry or analysis of an individual company. The fundamental analysis will use is a combination of data to establish the true value of the shares, to determine if they are under or overestimated and to predict its future value.

Most of the work of fundamental analysis involves dealing with the financial statements of companies. Also known as quantitative analysis, this means analyzing your income, expenses, assets, liabilities and all other financial aspects of a company. Analysts studying the basic information to get an idea of the future performance of a company. The analysis seeks to answer fundamental questions such as:

     * The company's sales are growing?
     * You get profit? And to generate cash flow?
     * How is financing its operations?
     * Is he in a position strong enough to beat the competitors in the future?
     * Will it be able to pay its debts?
     * Does the management is to falsify the numbers?

Much more than merely observe numbers, when it comes to analyzing a company, the determination of all aspects intangible and difficult to measure is extremely important. Moreover, in recent years, these are intangible gain ground when it comes to evaluating a company. We talk about the level of satisfaction of customers and employees, quality of management, the ability of the company is to innovate, to internationalize, and so on. So many questions and complexity in the analysis of a company, which is so important to analyze how knowledge put the right questions. Here you enter the qualitative analysis, which complements the hard analysis of the financial statements, and is to be the more subjective it is also what distinguishes the good financial analysts.

Of course, many analysts prefer to analyze the qualitative factors in conjunction with the rigid quantitative factors. Take a company like Ikea, for example. In analyzing this company, it is easy to accurately assess a battery of financial indicators and ratios, and the amount paid in annual dividends, earnings per share, the ratio price / earnings and many other quantitative factors. But obviously we're talking about a company with a big brand and a review of the Ikea never be complete without considering the value of the brand. There are many companies of home furnishings, but few companies have the reputation of millions of people, such as Ikea. It is so difficult to estimate the true value of the Ikea brand, we can not only support us in the financial statements.

One of the most central concepts of fundamental analysis is the question of intrinsic value. One of the first analysis of fundamental assumptions is that the price in the stock market does not fully reflect the "real" an action at any time. Being imperfect, the market sometimes understates the value of shares and other situations overstates the value of these shares. This phenomenon, which happens every day in all world stock exchanges, is what we call financial volatility and is what allows the use of some opportunities. For example, because the value of a firm price up or down 30% in one day only, as happened with several of the PSI-20 companies during 2008, that does not mean that the real value of these companies have varied in the same order of magnitude.

In this phenomenon, Benjamin Graham called Mr. Market and compared it to a vendor who suffers from bipolar disorder. Every day, the seller, the Mr. Market, knocking him to the door offering him the purchase or sale of its shares to a value that depends on your mood. If well prepared, the Mr. Market will offer you good money for their actions, but, if depressed, will propose you a miserable business. It is your decision that counts, can accept the deal he proposes it, or you can simply ignore it, hoping that he comes back the next day with a new proposal. The fundamental analysis, which seeks to find the real value of the business, its "intrinsic value", takes up the frequent mood swings of the market and the opportunities it offers, from a value below the intrinsic value and selling above .

Say, for example, that an action of a company is traded on the market today to € 20. After a thorough analysis of the company, to determine the actual value (the intrinsic value) is € 25. This is clearly an interesting opportunity, because it allows investors to buy shares that are traded at prices significantly lower than the estimated intrinsic value. But ... and if ever the market will reflect the intrinsic value of the action?

One of the fundamental assumptions of the analysis is that the long term the market will reflect the key issues. If the company is able to generate profits and cash flow at a rate higher than the market, then its price will move faster than the rate of market in the long term. But nobody knows for sure what "long term" because it can take days or years. However, it is not worth buying a share based on the intrinsic value, the price will never come to reflect this value or if the market remains irrational for a long time, and it happens very often.

The technical analysis is the other highest form of analysis of financial assets - including shares.

In general, the technical analysts base their investments in price and in their movements as well as the volume of transactions in a given period. Using a series of tables and other statistical tools, dealing with trends, not paying much attention to fundamental analysis. One of the basic principles of technical analysis is that the market discounts everything. Thus, all information about a company are reflected in the share price, which means that the movements of the share price give more information to buy or sell any of the major factors of the business.

For a fan of technical analysis, it does not matter much in the sector in which the company operates, or profits or losses is presented. You can buy shares of a company in the oil sector, financial or real estate, not applicable. Even if top management is incompetent and that the economic indicators are bad, what it matters is that the trend points to the rise, it is a sign of purchase. A highly profitable and innovative company, whose statistical indicators point to a decline in prices, will cause an order of sale.

This type of investors (speculators are in fact), acting mainly in the short term. Investors who are following the theory of efficient market, ie, believe that the market at any time incorporates all available information on current and future price of shares. The logic behind this argument is that since the market efficiently allocates and continuing a price for all shares, any opportunities for excess return achieved with any of the analysis would be almost immediately absorbed by numerous market participants, making it is impossible to achieve in the long term, superior performance to the market.

The analysis incorporates the technical information available at a given time and the expectations of investors at that time on a specific action. Expectations are the rumors, the information that is in the news second by second, finally, the sentiment of investors. Of course we are entering a field emotive, but it also has its rationale. If a stage to quietly watch a football match and see that everyone around you starts to scream in panic to escape, even if they do not idea of what is happening, what is your reaction? Run well and allowed to stay? If you understand this example, understand one of the most important in technical analysis.

Another assumption of the analysis technique is based on the repetition of behavior, that is, if in certain situations it is usual investors react in a certain way, then I expect that will do so again in a similar situation. While it is difficult to prove this assumption, somehow it makes sense.

The main methods and tools used by technical analysis will be explained later in a chapter specifically dedicated to investment in stock market but, for now, we can state the following:

     * Packages,
     * Moving averages,
     * Lines of resistance and support,
     * Graphic Standards,
     * Oscillators,
     * Etc. ..

Investing is, in our opinion, a productive activity and essential for the proper functioning of the economy (ultimately of our well-being), which should be based on all information and tools that can help in the decision-making. Penda want more to the side of the analysis for the fundamental or technical analysis, should enter the market the best preparation possible, avoid relying solely on luck. We will see further on how we can support the two techniques.