Every investor has been told to research the fundamentals before buying. This involves knowing the company and its business inside out as best as possible. After doing your homework you need to determine the growth prospects and the amount of risk involved. Fundamentalists ask, is the company undervalued relative to what it should currently be worth, or will be worth in the future?

You must look at management and their track record to determine if you are comfortable trusting them to run your company. You must consider the stock market outlook and expectations for the industry that your company participates in. In other words is your company in the right business at the right time?

You must review their financial statements to determine if they have enough capital to keep going and growing. Is their debt manageable or will they have to continually borrow or issue stock, diluting your ownership, to pay the rent?

Every investor must consider fundamentals! Investing is different from speculating because it requires research and analysis, which takes time and patience. Speculators tend to get caught in the momentum of stock price changes and volume, "the action", and ignore the fundamentals. The action tells them whether to buy or sell. In other words speculators have a short-term outlook and herd mentality, they tend to do what everyone else is doing. Who wants to buy a falling stock? If the fundamentals are good the investor buys and waits, the speculator sells and moves on.

The key points to fundamental investing is buy-low sell-high, or buy and wait to sell when the stock is overvalued. The key points to speculating are buy-high sell-higher or sell-quick and minimize losses.

Fundamental investing is great for large corporations with long track records of growth of sales, earnings, dividends, market recognition etc. The problem is this does not help the small investor who wants to buy a promising new company for its growth potential. Everyone would like to own Microsoft stock at 1985 share prices with 1995 fundamentals.

Investment newsletters mention small cap stocks and often talk about fundamentals. The companies mentioned usually don't have sound fundamentals, which implies risk. Some newsletters are great at uncovering overlooked promising growth stocks, just don't be fooled by talk about fundamentals. What they usually refer to, as fundamentals, are expectations and buying momentum.

Momentum trading is a technical term for determining worthy stocks based on the action. Momentum trading assumes the market action of a stock is indicating something shareholders need to know. It assumes the market is the truth teller of a stocks real value. If a stock is moving up or down on big volume a momentum trader does not wait for news, to buy or sell.

Why Read A Financial Newsletter?

Investment newsletters occupy a unique and valuable niche within the financial advisory industry. They often are small operations centered on one individual: their editor-advisor. Their primary distinguishing characteristic is agility in responding to market trends.

This is why investment newsletters stand out from Wall Street. Huge overheads, decision-by-committee, and a herd instinct, for example, plague the major Wall Street institutions. For them, innovation and flexibility is next to impossible. As legendary investor Peter Lynch put it in his best-seller ONE UP ON WALL STREET, "Under the current system, a stock isn't truly attractive (to an institutional investor) until a number of large institutions have recognized its suitability and an equal number of respected Wall Street analysts have put it on the recommended list. With so many people waiting for others to make the first move, it's amazing that anything gets bought." He concludes: "If you invest like an institution, you are doomed to perform like one."

Why is flexibility in responding to changed market conditions a virtue? Because the markets are quick to discount--and thus eliminate--strategies that otherwise would continue to beat the market. It's rare for an investment approach to work forever. More typically, a promising strategy works for a while--until everyone hears about it, jumps on the bandwagon, and it stops working. More often than not, as investors climb off that bandwagon, they find that it was an Investment Newsletter that had been there first.