How to Analyze Stocks

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Do you use facebook?

Photo of a smartphone with the Facebook application open
Economics is greatly impacted by how well information travels through society. Today, social media giants Twitter, Facebook, and Instagram are major forces on the information super highway. (Credit: Johan Larsson/Flickr)

Decisions ... decisions in the social media age

To post or not to post? Every day we are faced with a myriad of decisions, from what to have for breakfast, to which route to take to class, to the more complex—“Should I double major and add possibly another semester of study to my education?” Our response to these choices depends on the information we have available at any given moment; information economists call “imperfect” because we rarely have all the data we need to make perfect decisions. Despite the lack of perfect information, we still make hundreds of decisions a day.

And now, we have another avenue in which to gather information—social media. Outlets like Facebook and Twitter are altering the process by which we make choices, how we spend our time, which movies we see, which products we buy, and more. How many of you chose a university without checking out its Facebook page or Twitter stream first for information and feedback?

As you will see in this course, what happens in economics is affected by how well and how fast information is disseminated through a society, such as how quickly information travels through Facebook. “Economists love nothing better than when deep and liquid markets operate under conditions of perfect information,” says Jessica Irvine, National Economics Editor for News Corp Australia.

This leads us to the topic of this chapter, an introduction to the world of making decisions, processing information, and understanding behavior in markets —the world of economics. Each chapter in this book will start with a discussion about current (or sometimes past) events and revisit it at chapter’s end—to “bring home” the concepts in play.

Introduction

In this chapter, you will learn about:

  • What Is Economics, and Why Is It Important?
  • Microeconomics and Macroeconomics
  • How Economists Use Theories and Models to Understand Economic Issues
  • How Economies Can Be Organized: An Overview of Economic Systems

What is economics and why should you spend your time learning it? After all, there are other disciplines you could be studying, and other ways you could be spending your time. As the Bring it Home feature just mentioned, making choices is at the heart of what economists study, and your decision to take this course is as much as economic decision as anything else.

Economics is probably not what you think. It is not primarily about money or finance. It is not primarily about business. It is not mathematics. What is it then? It is both a subject area and a way of viewing the world.

Quiz PDF eBook: 
How to Analyze Stocks
Download Stocks Quiz PDF eBook
8 Pages
2014
English US
Educational Materials



Sample Questions from the How to Analyze Stocks Quiz

Question: What are the core principles behind the stock technical analysis

Choices:

"What" is happening to the stock price is more important than "Why"

Stock prices sum all of the market’s knowledge

Stock prices perfectly reflect the market’s underlying supply and demand forces

All the above

None of the above

Question: What are the advantages of the stock fundamental analysis?

Choices:

The stock fundamental analysis is perfectly suited for detecting long term economic trends

The stock fundamental analysis relies on historical stock price movements thus avoid guess based decisions.

The stock fundamental analysis filters out the noise in stock price fluctuations

The stock fundamental analysis is very time efficient and can provide market insights in real time.

Question: What are the most influential factors in stock fundamental analysis?

Choices:

Expected company financial growth

Expected financial trends at the national, industry, and the company levels.

Closely monitor the company stock price and rely on the market to efficiently balance the supply and demand.

Question: Which approach speculates the future stock value based on it's previous price movements.

Choices:

Stock fundamental analysis

Stock Technical analysis

All the above

None of the above

Question: What are the disadvantages of the stock fundamental analysis?

Choices:

The stock fundamental analysis requires much time and effort thus severely limits its stock market spectrum

The ever changing economic landscape renders the years long experience in fundamental analysis useless

In an efficient market it's unlikely for million of investors to overlook under/overvalued stocks

Fundamental analysis results depends on the analysts performing the research this can be inaccurate, biased, and misleading.

Question: How can an investor apply the stock fundamental analysis?

Choices:

Always buy company stocks in a bull market and sell in a bear market

Buy company stocks whenever it's stock price is undervalued.

Short sell company stocks which stock price is overvalued.

All the above

None of the above

Question: What are the disadvantages of the stock technical analysis?

Choices:

The approach is time consuming as it varies based on the industry sector and the individual company

The analysis results accuracy depends on the market analysts interests and bias

The analysis results worthiness are questionable as it based on the information acquired from the company itself

All the above

None of the above

Question: What is the stock fundamental analysis?

Choices:

The estimation of the future stock value based on it's previous price movements.

The estimation of the future stock value based on the company intrinsic value.

All the above

None of the above

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Brenna Fike
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