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Getting Started in Stock Analysis, Illustrated Edition

ISBN: 978-1-118-93786-0
256 pages
January 2015
Getting Started in Stock Analysis, Illustrated Edition (1118937864) cover image

Description

Robust analysis shows a more complete picture of market behavior

Getting Started in Stock Analysis is an exciting visual guide to both technical and fundamental analysis for the private investor. Rather than addressing the benefits of fundamental or technical analysis, author and trader Michael C. Thomsett draws upon three decades' experience in the stock market to demonstrate why traders need to employ both. Readers will learn how both methods are different aspects of the same cause and effect within the market, and how exploiting one method at the expense of the other results in an incomplete picture of the true market behavior. Coverage includes a full explanation of the range of indicators necessary to create a working system of analysis that anyone can perform on their own, helping long- and short-term investors alike improve selection and confirm investment decisions. Charts of actual listed companies demonstrate how these techniques are applied in a real trading environment.

Investors and traders are constantly seeking the "magic bullet" for identifying profitable trades and timing both entry and exit. Since the 1940s, the average holding period has fallen from eight years to eight weeks – making fundamental and technical analysis more challenging. This book describes how combining these approaches can compensate for the modern market environment to produce a more accurate – and profitable – analysis.

  • Choose better stocks and other securities
  • Improve entry and exit while managing risk
  • Develop more robust analysis skills
  • Blend fundamental and technical analysis techniques

The reduced cost of trading, ease of access via the Internet, and changes in the overall culture of the stock market have increased the pace and volume of trading more than ever before. In this environment, sharp analysis becomes ever more critical. Getting Started in Stock Analysis is the visual guide to more confident investing.

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Table of Contents

Acknowledgments ix

Element Key xi

Introduction xiii

Part I Fundamental Analysis

Chapter 1: Financial Statements in Overview 3

The GAAP System 5

Auditing of the Books: Purpose and Process 7

Stockholder Reliance on the Audit 11

Methods of Hiding or Distorting Data 12

The Regulatory Environment 16

Types of Financial Statements 20

Annual Reports 21

Analysis: The Importance of Trends 23

Simplifying the Financial Statement 26

Chapter 2: How Reliable Are the Financial Reports? 31

Publicly Traded Company Reporting 31

The Need for Financial Reporting 33

The Value and Purpose of Fundamental Analysis 35

Long-Term Trends and Ratios 38

Fundamental Risks 41

Contrarian Investing from a Fundamental Perspective 47

Is Buy and Hold Dead? 49

Chapter 3: Balance Sheet Ratios—Testing Working Capital 57

The Balance Sheet in Review 58

Flaws in the Balance Sheet 60

The Importance of Footnotes 63

The Key Balance Sheet Ratios 65

Chapter 4: Income Statement Ratios—Trends and Profits 73

The Income Statement in Review 74

Flaws in the Income Statement 78

The Importance of Footnotes and Management’s Commentary 82

The Key Income Statement Ratios 84

Chapter 5: Five Key Trends Every Investor Needs 93

Trend #1: The Price/Earnings Ratio (P/E) 96

Trend #2: Dividend Yield and Trend #3: Dividend History 100

Trend #4: Revenue and Earnings 106

Trend #5: Debt Ratio 111

Chapter 6: The Annual Report and What It Reveals 121

Sections of the Annual Report 124

The Annual Report as a Marketing Document 130

How to Use the Annual Report 131

Chapter 7: Fundamentals Not on the Statement 137

Dividend Yield, Payout Ratio, and History 138

Market Cap 147

Contingent Liabilities and Other Liabilities 150

Market Value of Long-Term Assets 151

Insider Trading 153

The Value of Good Management 154

Part II Technical Analysis

Chapter 8: Theories and What They Mean 161

The Dow Theory 162

Efficient Market Hypothesis (EMH) 171

Random Walk Hypothesis (RWH) 176

Other Theories 178

Chapter 9: Charting and Its Value 185

Types of Charts 186

Scaling of Chart Values 191

Candlestick Basics 194

Single-Session Indicators 196

Two-Session Indicators 201

Three-Session Indicators 206

Reversal and Continuation 212

Chapter 10: Trends and How to Study Them 217

Trends as Indicators of Risk 219

Trendlines 222

Channel Lines 224

Triangles and Wedges 227

Chapter 11: Moving Averages and Their Value 237

Simple and Exponential Averages 238

Duration of the Moving Average (MA) 241

Double Crossover between MA Lines 242

Price Crossover Signals 245

Support and Resistance and MA Trends 248

Bollinger Bands for Short-Term Trend Monitoring 250

Chapter 12: Price Indicators 257

Support and Resistance 258

Double Tops and Bottoms 264

Head and Shoulders 266

Flags and Pennants 269

Chapter 13: Volume Indicators 275

Accumulation/Distribution (A/D) 275

Chaikin Money Flow (CMF) 279

Money Flow Index (MFI) 283

On-Balance Volume (OBV) 285

Chapter 14: Momentum Oscillators 293

The Nature of Momentum 294

Relative Strength Index (RSI) 298

Moving Average Convergence Divergence (MACD) 302

Stochastic Oscillator 306

Chapter 15: Confirmation, the Key to Timing 315

What Confirmation Is Not 316

Proximity and Strength of the Signal 317

Setting Rules for Yourself 321

Glossary 329

About the Author 349

Index 351

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Author Information

MICHAEL C. THOMSETT has written more than 70 books on investing, real estate, business, and management. He is the author of the eight editions of the bestselling Getting Started in Options, as well as Getting Started in Fundamental Analysis, Getting Started in Real Estate Investing, and Getting Started in Swing Trading all from Wiley.

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