Stocks are one of the most frequently traded financial instruments, but there are many different elements attached to stock investments and valuations. Review some of the key aspects of the Stock Investing Strategies course to remind yourself of fundamental analysis, value and growth investing, different investment strategies and more.
What is fundamental analysis?
Fundamental analysis involves studying the current market price of an asset and comparing it to its fair market value and wider macroeconomic factors. It can help investors to determine which action is most appropriate for a particular stock or asset.
What are the three financial reports?
Financial reports can help investors to understand — in detail — how a company is performing. The three primary financial reports include:
- Balance sheets: information regarding a company’s assets, liabilities, debt and capital
- Income statements: information about a firm’s revenue, capital gains, net income and overall profitability
- Cash flow: information about the cash generated by a company’s core operations, as well as other forms of income and spending
How to value stocks
There are a range of options available to those looking to value a stock. Multiples and ratios can be used to turn essential data points, such as income statements and cash flow, into an easily understood number. This can help investors to make comparisons more easily between companies.
Stock valuation involves using fundamental analysis data to understand a company’s financial standing and future prospects. For example, the discounted cash flow (DCF) model looks at projected future earnings and the potential value of any revenue that might be shared with an investor over a long period of time.
What are the different investment strategies?
Once you have determined which stocks to invest in, there are several different stock investment strategies that can be employed. Some of these strategies include:
| Value investing | Investing in stocks that are undervalued |
| Growth investing | Investing in stocks that are expected to outperform their sector or the market |
| Trend investing | Investing in stocks based on wider stock market movements and price trends |
| Momentum investing | Investing in stocks or sectors that are growing in popularity |
| Quantitative investing | Investing in stocks based on historical data and technical analysis |
| Environmental, social and governance (ESG) investing | Investing in companies and stocks based on their ethical policies |
| Passive investing | Investing in stocks that are likely to track the market |
What is hedging?
Hedging is a popular risk management strategy that can potentially offset losses. Put simply, hedging involves investing in multiple assets to lower the risk of individual assets performing badly. For example, investing in different stock sectors can potentially help you to avoid heavy losses if a specific sector underperforms. Diversifying across multiple asset classes can mitigate this risk further still, as not all asset prices are correlated.
Now that you have completed the Stock Investing Strategies course, either take a second look at any of the articles or test your knowledge with a quiz!
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This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments. This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.