Stock Market Investing Schools of Thought: How to Find Potential Stocks
•By mahersaham
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What do stock market investing schools of thought have to do with ships? Read on to find out.
Is it necessary to think about what is happening in the stock market and when to enter the market?
There are two schools of thought. One school does not focus much on stock market price movements.
The other school looks at both — price movements as well as the health of the business, especially when a market crash occurs.
This school will still enter and buy stocks at any time, as long as the company''s business is genuinely profitable and the current valuation is much cheaper compared to the earnings the company is expected to generate in the coming years.
Why doesn''t this school care much about market price movements, whether it goes up or down?
According to them, if you focus too much on stock price movements, it is the same as making macro speculation, or using a "bottom-up approach" incorrectly.
It is a big mistake if you keep watching prices go up and down non-stop — that is essentially pure speculation.
In reality, conducting macro analysis is not speculation. Speculation is when there is absolutely no basis at all, just guessing: "the price will go up, tomorrow it will definitely drop back down". /blogs/speculative-stock/
Imagine someone who only watches stock price movements — it is like watching a ship and the waves at sea. The rolling waves are like stock price movements.
A company is like a ship, sailing on the ocean following the natural tides, and can sink when a big wave hits and capsizes it.
Once you find a company''s stock (ship), you start feeling anxious when the ship gets hit by waves, causing it to rock back and forth, especially when there are external factors like COVID (the waves).
Then, you start looking for another company (ship) just to avoid COVID risk and other risks such as inflation, war, and so on.
It is actually easier to find a ship that has potential and steady profits. No need to trouble yourself trying to predict storms and other risks.
Once you have found a good and safe ship, just sit quietly in it and ride along for years as it sails the ocean.
During that time, there will be storms in the middle of the ocean. Some ships will sink, some will survive. If the storm is really severe and a little water gets in, that is still okay. Just make sure it does not capsize.
The key is to find ships that are safe from the very beginning, and you will not need to worry even if the ship rocks.
Once you have safely reached your destination, then you get off the ship (sell for a profit).
The school that does not watch price fluctuations will never wait, because it only depends on the potential of each company it invests in.
This school focuses on only two things: one is what is "important", and the other is what is "knowable".
They do not deny that stock price movements are important. If you do not look at stock prices going up and down, how would you know when is the right time to buy?
So, you still need to look at the timing and the best current price when buying stocks. Otherwise, you will never buy at all.
Sometimes, if the stock price keeps going up, you should just buy, because if you wait for it to drop, it may take a long time — the stock price may no longer be very volatile.
Prices drop slowly, prices rise slowly. Just buy at whatever price once you are truly confident in the company.
However, the "knowable" criteria is not sufficient. This is because the direction of stock prices is difficult to predict — whether they will go up or down.
The other school conducts analysis based on certain chart patterns, not merely watching stock price movements.
It is a form of study closely related to the journey of a company from its founding until the present day.
Chart studies and analysis also incorporate other elements and factors besides price movements.
Every impact on a company will be reflected in its stock price.
A company''s past experience or track record can also be identified by looking at chart patterns and using certain tools.
For example, if you are already a client, you can screen for potential counters using the mahersaham support bot and the indicators already set up in the chart to analyse stock price direction. /blogs/mahersaham-support-bot/
It is not purely speculation as claimed by the school that does not focus on price movements.
Combining these schools of thought in stock investing is perfectly fine — even when a company''s stock price is plummeting, they will still buy because they believe in the business and the company''s profitability, not just the current stock price.
If you wish to follow this approach, you can consider buying "superior" stocks when the market is down.
Looking at the market recently, it has been quite rough. Hopefully there will be a silver lining to start finding healthy counters with consistently growing profits that provide reasonable dividend returns.
Start accumulating capital and buying healthy counters bit by bit. The condition is that you must filter good companies first before buying.
In the context of stock investing, schools of thought refer to different approaches or philosophies. One school focuses on fundamental analysis — evaluating a company''s business and profitability. The other school focuses on technical analysis — studying stock price movements and chart patterns.
Fundamental analysis assesses the true value of a company based on revenue, profits, debt, and business prospects. Technical analysis studies price movement patterns, trading volume, and chart indicators to forecast the direction of stock prices. Both can be combined for better investment decisions.
Look for companies with strong financial fundamentals, consistent profitability, low debt, and reasonable dividend payments. Use screeners to filter healthy stocks and buy gradually when prices have fallen to attractive levels based on fundamental valuation.
Combining schools of thought means merging different approaches in investing. For example, using fundamental analysis to select quality companies, then using technical analysis to determine the best time to buy or sell those stocks.
Understanding the various schools of thought in stock investing helps you build a strategy that suits your investing style and goals. Combine knowledge and experience to make wiser investment decisions.
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