You will probably be tempted to use technical analysis. Technical analysis does not work. It is a tool that was created to describe past trends. It is still used by a whole host of analysts who are more often wrong than right.
Understanding stock market investing
I heard this text from a guy working on the London Stock Exchange. He told a story about a guy who wrote a thank you letter to a stock analyst. He became a millionaire thanks to it. The author noted that he read exactly what the stock market analyst wrote, but he always did the opposite.
A whole lot of books have been written on the subject of technical analysis and I have many of them on my shelf. I myself used to think that thanks to them I would earn money on the financial markets. It’s actually quite funny.
In the stock market, you have to separate the past from the future. The future is generally unknown, but it can be predicted based on current events. What works (the only tool that works) is VSA analysis. It is an analysis of the volume and behavior of the price on the chart. It’s the law of cause and effect. It is the law of supply and demand.
If someone is buying a lot of a given asset today, the price will rise in the future. If during the growth we see that someone is selling a lot, the price will fall. Similarly, if someone stops selling on a decline, then with low demand, the price will rise. If someone stops buying on the rise, the price will have to correct.
What is a good investment?
If I were to put it as briefly as possible, I would say that it is the purchase of a fundamentally good company that is bought by large investors. How to check whether a company is fundamentally good, I have shown above, along with an indication of our ebook on investing in the stock market.
How to check whether a company is bought by large investors?
Unfortunately, VSA analysis is not something that can be learned in 5 minutes. This is not a ratio analysis. It is the science of cause-and-effect relationships, which should be learned to see on stock price charts as a continuity of certain events.
An example of such an analysis can be a VSA analysis made by Bartek on the basis of one of the companies that we have had in our portfolio for some time.
Anyway, it’s quite funny from the perspective of today. At the end of October, I wrote an article on the value of listed companies. Listed companies have managed to increase their revenues sharply thanks to inflation (banks share interest due to high interest rates, which affect their profit).
Tri-compliance, or a new turn in company analysis
The shares have a correspondence between the fundamental analysis (current value) and the VSA analysis (shares have been bought back and are in an upward impulse, while corrections are clearly marked). The bank, despite an increase of nearly 50%, still has quite a large discount. This is an example of a good analysis that ultimately leads to the choice of a good investment.