Should an Investor Choose Between Fundamental vs. Technical Analysis?

Many successful investors use a blend of both fundamental analysis and technical analysis.

Think of it this way: fundamental analysis might tell you what to buy (a solid company at a good value), while technical analysis might tell you when to buy it (the timing, based on price trend).

Using both can provide a more complete picture...

Even if you lean fundamental, it doesn't hurt to check a stock's chart for major warning signs (say, a downward trend that hasn't stabilized). Likewise, if you're a chart devotee, it's wise to understand the company behind the stock before making a big bet.

Another way to view it: fundamental analysis seeks to minimize risk by investing in quality businesses, and technical analysis seeks to maximize returns by optimizing entry/exit points and catching trends.

Greg Diamond, for instance, concentrates on technicals for trading but still acknowledged that "great businesses with a history of making money and paying good dividends are vital for 'buy and hold' strategies."

Often, fundamentals matter for long-term wealth, while technicals dominate in short-term price behavior.

So, which approach should an investor use to pick stocks? The answer depends on your personal style, goals, and how much time you want to devote to analysis:

If you prefer long-term investments and don't want to monitor the market daily, leaning towards fundamental analysis makes sense. Learn more by clicking here.

You might start by identifying companies with stable profits, reliable dividends, or products that retirees understand and use. Ensure the price you pay isn't exorbitant relative to earnings or assets. This way, you build a portfolio of businesses you believe in.

Many investors find real value in this approach, knowing they own pieces of real companies, not just ticker symbols.

If you're more active or concerned with timing, you could incorporate technical analysis. Learn more about technical analysis by clicking here.

For example, say you've researched a solid utility stock (fundamentals check out: healthy balance sheet, good dividend).

Rather than buying it immediately, you examine the stock's chart. If it's in a downtrend, you might wait for signs of a bottom (perhaps the price stops falling at a certain support level for several weeks). This tactical patience can improve your purchase price.

And of course, many investors use both...

For example, an investor might use fundamental analysis to make a watchlist of quality stocks and use technical analysis to decide when to pull the trigger.