How to do a full fundamentals analysis on a stock/bond?

[ConfusedInvestor]

I've been investing in the stockmarket for a little longer than a year since I've downloaded the Robinhood app, but I have only been putting around 5%-20% of my savings on there because I don't know what I'm doing. Otherwise I've just been sticking to vanilla investments like money market accounts, treasury bills, and CDs. It seems like these financial products are the only way to bet "on a sure thing". The money I've used on Robinhood has basically been a swing trading experiment because in my limited free time over the past year I've just been briefly reading the news, reading internet articles, and recently I've been looking more closely at the share price growth over the stock's history and their ability to pay consistent dividends.

I haven't delved as deeply into this yet because of my limited free time and risk. I only have about $25k I can afford to either lock away in a bond or potentially lose value on. I've concluded I don't have much of an interest in day trading or swing trading because there's a huge amount of anxiety related to the two strategies, and as a result I've concluded it would be better just to look at the balance sheets, income statements, and cash flows, and then just hang onto the investments for years without selling them.

I've looked for simple calculations to do a fundamentals analysis but the sites touting these such as investopedia.com aren't clear about which specific numbers you are supposed to look for on the SEC filings. For example, the P/E ratio is a popular number in fundamental analysis but by itself is just an irrelevant number, and you have to factor in other considerations like the company's debts and their earnings. One thing I've been doing while looking at stocks recently, in addition to looking at their share price appreciation and ability to pay dividends, is comparing their assets to their debts.

However, i still feel lost overall, and like my savings enough that I would like to make my stock picks based on some more solid math. How do you pick stocks to hang on to for a long time? The only thing I really care about are the returns.

 

[dbphoenix]

I strongly suggest you look at How To Make Money In Stocks (stick with the first edition as there's a lot less self-promotion in it; you will also likely be able to find it at your local library). This will go deeply enough into fundamentals to enable you to make an informed decision without drowning you in a lot of niggling detail. Once you've selected a group of stocks to monitor, the book also explains what to look for technically to improve your timing. IOW, the author explains what to buy, then when to buy it.

Db

 

[ConfusedInvestor]

I strongly suggest you look at How To Make Money In Stocks (stick with the first edition as there's a lot less self-promotion in it; you will also likely be able to find it at your local library). This will go deeply enough into fundamentals to enable you to make an informed decision without drowning you in a lot of niggling detail. Once you've selected a group of stocks to monitor, the book also explains what to look for technically to improve your timing. IOW, the author explains what to buy, then when to buy it.

Db

Thank you very much, I will rent the book next week from my library if they have it. I've already bought "the intelligent investor" 12th edition, and that so far has had a lot of useful information, but benjamin graham's writing style is very dry and I've only gotten through about 170 pages of it before getting frustrated with it and putting it down due to the jargon.

Do you have any recommendations for which edition of "security analysis" by graham to read as a pdf or buy in the future? Each edition of his books are completely different since the stock trading landscape is always rapidly changing. I just like the idea of adding that book to my library in order to have some good technical info on the stock market.

 

[dbphoenix]

Thank you very much, I will rent the book next week from my library if they have it. I've already bought "the intelligent investor" 12th edition, and that so far has had a lot of useful information, but benjamin graham's writing style is very dry and I've only gotten through about 170 pages of it before getting frustrated with it and putting it down due to the jargon.

Do you have any recommendations for which edition of "security analysis" by graham to read as a pdf or buy in the future? Each edition of his books are completely different since the stock trading landscape is always rapidly changing. I just like the idea of adding that book to my library in order to have some good technical info on the stock market.

How deeply you get into fundamental analysis will depend on what kind of investor you are or want to be. What I like about O'Neil is that his approach tells me enough without drowning me in minutiae, basically, is the company making money and, if so, how consistently is it doing so? The "momentum" investor, much less the momentum trader, doesn't necessarily care whether the company is making money or not so long as it's "hot" and stays that way. Judging by your first post, it doesn't sound like you want to go there.

"Technicals" were king up until the market crash in '29. Graham's Security Analysis (1934) was in large part a reaction to that. Fundamental analysis became king and technicals gave off a bad smell. Eventually, experienced market professionals understood that both were necessary, which is where O'Neill's work, combining the two, provides value.

I gave up on stocks around 2000. Too much fudging going on in the efforts to impress fund managers and keep them happy. But trading technically with no knowledge of fundamentals and fundamental analysis carries its own dangers for the new and inexperienced IF you want to trade stocks or similar instruments. Which takes us back to O'Neil.

So I suppose the best answer to your question is to attain some basic familiarity with the kind of fundamental analysis that most amateurs investigate via O'Neil (earnings, sales, consistency, etc), then dig deeper via Graham if you find it necessary to do so.

Db

 

[danpadcas]

You should then have a look at this also; It explains easily how to analyse a stock without feeling overwhelmed.

https://www.nasdaq.com/investing/dozen/

Once you are done go and start playing around with the best stock searcher; https://finviz.com/