Whether you're just starting your investment journey or already have some experience, mastering the art of stock research is essential. With countless options like shares and ETFs, available, it can feel overwhelming to figure out where to begin. Let's explore how you can evaluate different investment options and the right ones for your portfolio. 

Where to start 

To start your research, first decide on some basic criteria to help you quickly filter your options. You could create a watchlist of interesting stocks or use a stock screener—a tool that helps investors pick stocks based on specific criteria. Think about what kind of investments you want, how much risk you're comfortable taking, and how long you plan to invest. For example, if you plan to invest for a long time and prefer lower risk, you might stay away from investments that are high-risk or very unpredictable.  It's important to remember that there isn't a one-size-fits-all approach to this. 

Once you've narrowed down your options to a shortlist, you can start examining each one more closely. Generally, investors use two main methods to assess their potential investments. One way is to learn about the company itself—like how it makes money and how healthy it is financially. This is called fundamental analysis. The other way is to look at the price history of the company's stock and use patterns you see in the charts to help make your investment decisions. This is known as technical analysis. Let’s explore these methods further and see how you can use them in your research. 

Fundamental analysis 

Fundamental analysis is all about examining factors related to a company to determine its true value. Sometimes, the market price doesn't match what investors think it's worth, whether it's overvalued, fairly valued, or undervalued. Investors look at numbers and more abstract factors like a company's management and future prospects. 

 If you're taking a closer look at the fundamentals, here are some areas to investigate: 

1. Financials: A company's financials are a bit like the dashboard of a car. Instead of showing speed and fuel levels, financial statements display metrics such as revenue, earnings, and debt. These indicators help investors understand how the company is progressing and if there are any performance issues that need attention. Just like a car dashboard, financial reports can sometimes flash warning lights—such as slowing growth or high debt—that signal potential problems. A company's official website can be a good place to find investor related information. 

2. Management: If a company was a ship, then its management team, including the CEO and other executives, would be the captains. Good management decisions can help ensure a company navigate change and operate smoothly into the future. If company leaders own shares in the company, it's often a positive sign because their personal success is directly tied to the company's success, motivating them to work harder. It's crucial to assess the skills and experience of a company's management team, as they have a big impact on the company's direction and performance. You can do this by checking if they keep their word and make their plans a reality. Also, looking into their reputation and past achievements can provide insight. 

3. Competitive analysis: Competitive threats matter because they can take customers and business away from the company you've invested in. In the worst case scenario, it could lead to permanent disruption. Comparing a company against its closest competitors could provide some unique insights into its market position. You might look at things like market share, how its products differ from others, or its competitive strengths.   Understanding how a company is dealing with its current and emerging competition can give you a better idea of how strong it might be in the long run. 

4. Market trends: While competitors are a concern, market trends can also affect your investments. Think about major changes in technology or politics—they can really shake things up. For example, digital cameras, streaming services, and ridesharing have changed entire industries. It's important to stay in the loop with what's happening so you can understand how it might affect your investments. 

5. Economic conditions: Broader economic conditions, both globally and domestically, can  influence the trajectory of companies. Consider factors such as interest rates, economic growth, inflation, geopolitical stability and consumer sentiment to understand how various external economic conditions might play a role. 

Technical analysis

 As a visual representation of the stock’s recent performance, charts or charting can give you some insights and help you make the most informed investment decisions. CMC Invest gives you access to a whole range of charts which you can find out more about here.

They include information on the stock’s performance over days, weeks, months and years. You could get valuable insights from these charts, including trends, patterns, volatility and more. All this data can then help you decide whether it’s a smart idea to buy or sell at a particular point in time. 

Here are some of the key terms used when looking at charts: 

• Open: The stock's price at the beginning of the trading period. 

• High/low: A stock's highest and lowest prices during a specific period. 

• Trendlines: Lines drawn on a chart connecting lows or highs to help identify the direction of the trend. 

• Support and Resistance: Levels on a stock chart where the price tends to stop falling (support) or rising (resistance) 

• Volume: The number of shares traded over a given period, often used to confirm trends or reversals. 

• Breakout: When the price of a security moves above or below a certain level of resistance or support, signaling a potential change in trend. 

• 52-week high/low: The highest and lowest prices traded in a year. 

Let's now take a look at some examples on how investors might actually use technical analysis in their investment decisions: 

Imagine you're considering investing in Company X. You pull up its stock chart and notice that over the past three months, the stock price has been steadily increasing with small fluctuations. This indicates an upward trend. You might interpret this as a positive sign, suggesting that the company's stock has been performing well over time. 

When you check the chart of Company Y's stock, you notice that every time the stock price approaches $50, it tends to bounce back up. This suggests that $50 is a support level for the stock—a price point where buyers are stepping in to prevent further declines. As a beginner, you might see this as an opportunity to buy the stock when it approaches $50, anticipating that it will likely bounce back up again. 

It's important to remember that technical analysis, like fundamental analysis, is like a helpful tool in a toolbox, but it's not a magic crystal ball. They can give us clues about what might happen next in the stock market, but just because something worked in the past doesn't mean it'll work the same way in the future. 

More detail on these terms can be found in our Essential Terminology section.

Next steps 

Through the desktop platform or app, CMC Invest provides several different tools to support your research.  

Overview: provides price history in a chart which you can view over different time periods. You can also view ESG Ratings and see detailed Morningstar Recommendations and reports. 

Analysis: details the the key financials of a company, including historical data on income, balance sheets, and cash flow. 

Watchlist: you can add a particular company or option to a watch list. As the name suggests, you’re just watching the company and don’t have to buy or sell if you don’t wish. Watch lists can be a great way to monitor a stock before choosing whether to add them to your portfolio. You can set up multiple watch lists in CMC Invest so you can group options based on your different investing goals.  

Key takeaways  

• Begin your investment research by establishing basic criteria such as investment type, risk tolerance, and duration to efficiently filter options using tools like watchlists and stock screeners. 

• Fundamental analysis helps you evaluate whether a company's stock price is reasonable by examining its financial health, management quality, and competitors. 

• Technical analysis involves using past price movements and patterns from charts to forecast the future prices of stocks.