Practical Application of Stock Analysis

Stock market predictions are as good as gold in your pocket - if they come true. If stock markets were quick-fix roads to financial freedom, we could all retire and spend the rest of our days in the lap of luxury. Of course, stock trading just isn't that simple, but that does not mean it has to be a wasted venture.

Long-term successful investors usually follow a few key rules, and it's important to note that the practical application of stock market data looks at the underlying reality of the numbers. In other words, it is important to distinguish the difference between numbers written on paper and the reality of the information behind it.

Two vital points that will allow you to do this are most commonly heard from the world's most successful investor, Warren Buffett. The first point is to practice integrity, and the second is to 'be fearful when others are greedy and greedy when others are fearful'.

Dealing with companies with integrity is simple advice, but in practice, people are often tempted to take on a quick-fix solution that may involve a lot of risk. Thorough research is needed to determine a company's integrity, and clean balance sheets and a clear business structure that makes sensible plans for the future is a good place to start when looking at integrity. A company's size does not always guarantee its integrity.

The second piece of advice may be difficult for many to carry out, but in the past, it has proven true. Some investors are viewing 2009 as an opportunity to pick up blue chip shares for a relative bargain, and with plenty of doom and gloom surrounding the markets, if you were going to follow Warren's advice, now may be the time to do it.

Obviously individual investors may feel they have a lot more to risk than one of the world's richest men, but certainly investing in solid companies for a cheaper price and remembering risk factors when a company's shares are going well is something to consider. Viewing a company's integrity and long-term viability instead of its current 'paper' value is a good way to use stock market analysis successfully in reality.

A word of warning - buying when others are fearful may allow you to achieve the returns you desire, but that doesn't mean making decisions that aren't sensible. The shorter the timeframe remaining on your investment, the more important the numbers on paper become, so consider this as a part of your practical application of stock market analysis too.

The longer the term planned for your investment, the more important integrity and Warren's advice becomes, and by looking beyond the numbers provided in stock market analysis, you can build a stronger investment plan for the future.