COMMON STOCKS

The two traditional and well known approaches to analyzing and/or selecting common stocks are fundamental analysis and technical analysis. However the significant amount of research in recent years on the concept of efficient markets has widespread implications for the analysis and valuation of common stock.Therefore, our discussion of common stocks is built around these approaches and any implications from the efficient markets literature.

Traditionally, fundamental analysis has occupied the majority of resources devoted to the analysis of common stocks. All investors should understand the logic of, and rationale for, fundamental analysis. It deserves, and receives, careful consideration is devoted to security analysis. The other approach to security analysis, technical analysis, is also analyzed. The efficient market concept has implications for both approaches as well as for portfolio management.

The two basic approaches, technical and fundamental analysis, are followed by a consideration of efficient market concepts and implications. It includes technical analysis (the search for identifiable and recurring stock price patterns), Momentum Strategies (investing on the basis of recent movements in the price of a stock) and Fundamental Analysis (the study of a stock's value using basic data such as its earnings, sales, risk, and so forth which has an intrinsic value i.e. the estimated value of a security.