How to read a fundamentals analysis of an investment?

Fundamental analysis is based on available information that attempts to value security. This valuation is then used as the basis for investing decisions.


The process of performing fundamental analysis involves studying financial statements, market conditions and economic data, but it does not end there. Many other factors can influence an individual’s decision to purchase or sell stocks; this article will discuss some of them in detail, including current events, emotions and risk tolerance.

Risk tolerance

A term used by investment advisors to refer to how quickly one can handle losses before making emotional decisions (selling). The higher the risk tolerance, the less emotional someone becomes during market fluctuations. If you have a low-risk tolerance, holding a more significant percentage of bonds, money market funds, and cash within your portfolio may be beneficial.

Current events

Another factor that investors should consider is the possibility of current events affecting an investment’s performance. Political changes in your home country could affect foreign investments you are holding, primarily if they are held within a mutual fund or ETF.


Other examples include changes to government programs such as Medicare, defence budgets or even social security. These factors may cause an expected outcome to change, which will likely affect the value of your holdings.


The final theme this article will cover is the emotional aspect of investing. Buying stock based on someone’s hot tip can often lead to losses instead of gains because people tend to overestimate what they know and underestimate what they do not know.


It stems from confirmation bias, which is the tendency to accept information that supports your hypothesis; this allows you to avoid validating or refuting information contrary to your expectations. You can avoid confirmation bias by considering opposing views and then deciding for yourself what makes sense based on available evidence. Hence, you are less likely to fall victim to emotions.


Many basic financial statements are posted online, allowing potential investors an opportunity to conduct their analysis of a company’s worthiness before committing their hard-earned money. A few of these documents include stocks’ annual reports, also known as 10-K forms, quarterly earnings releases called 10-Q forms and finally, balance sheet, which contains assets, liabilities and shareholder equity, among other items.

Accounting or finance major

It is unnecessary to become an accounting or finance major to perform fundamental analysis. All it takes is the desire to learn and some time set aside each week to do so; It’s recommended using financial portals such as Yahoo! Finance, Google Finance or MSN Money which provide several tools that can assist you in your investments.


These tools include stock charts, news articles (including editorials), price history and analyst ratings, among others. Using these tools in combination with information found on company websites will help you decide what stocks are worth buying and when it would be best to sell them.

In conclusion

As always, remember don’t invest any more than you can afford to lose, especially if going short term with your investments. Trading is always a risk and never a sure thing; the only way to guarantee you won’t lose money is by not investing at all.


Investing itself is a fascinating topic. Everyone wants to make more money, but it’s not just as easy as throwing some funds into the market and hoping for the best. The first step should constantly be researching businesses that you’re interested in. It isn’t just limited to picking stocks either; even if you are putting your money into other investments like real estate, you will still want to have some idea of who or what you are getting involved with.


Once this fundamental analysis has been done, you can feel confident knowing that your future profits will likely grow along with these companies’ prospects!