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Security Analysis

Security analysis is the process of evaluating the intrinsic value of financial securities such as stocks, bonds, and other assets. This evaluation is typically done by studying financial statements, industry trends, and macroeconomic factors. There are two primary methods of security analysis: fundamental analysis and technical analysis. Fundamental analysis involves assessing a company's financial health, while technical analysis focuses on price movements and chart patterns.

Example

An investor performs security analysis on a tech company’s stock by examining its earnings reports, balance sheets, and the industry’s growth prospects before deciding whether to buy or sell the stock.

Key points

• Evaluates the value and potential performance of financial securities.

• Involves both fundamental and technical analysis.

• Helps investors make informed decisions about buying or selling assets.

Quick Answers to Curious Questions

It allows investors to assess whether a security is undervalued or overvalued, guiding better investment decisions.

Technical analysis focuses on price trends and patterns, which are more useful in short-term strategies, while fundamental analysis looks at long-term value.

Security analysis, particularly through technical indicators, can help identify favorable times to enter or exit a position by studying historical price patterns and volume trends.