An Intro To Stock Analysis: Criteria vs Criterion
Just like we discussed above, stock criteria is one particular bit of information about a stock that usually informs the investor about a key area. Criterion are a collection of those points, typically clustered around a key area.
Whether we're talking about criteria or individual criterion, all of this information is used to compare, contrast, and select stocks. Being able to examine a stock dispassionately, on its merits, is one of the keys to making money in the market. In that way, being able to examine criteria vs criterion is absolutely crucial.
Stock CriterionOnce you understand the terminology, you'll see that examining any given criterion about a stock is actually very straightforward. For instance, the current share price is one of the most critical criteria to know, and it's as simple as looking up the ticker symbol.
Other points of criterion include the sector and segment that a company operates in, market share and competition, and recent and historical industry growth. All of these criterion individually provide an incomplete look at any given stock, but taken together -- as criteria -- they add up to be a very powerful analytic tool.
Simple CriteriaAt its most basic, simple criteria is just a sum of various criterion. For example, the makeup of the board of directors could be classified as simple criteria. It's not reliant on any outside factors, doesn't tend to change regardless of market conditions, and is a collection of discrete data that can point investors toward a conclusion, or at least educate them about the company that they're considering making an investment in.
Some other simple criteria would include everything from profits over time, growth in market share as compared to competitors, products that a particular company already offers or is set to offer, and the assets that a company has on hand.
Complex CriteriaExamining complex criteria is one of the most difficult aspects of learning about a stock. A real, detailed analysis of complex criterion is beyond the scope of this article -- in fact you'd probably need to spend quite a bit of time educating yourself about stocks and the market in general before you truly understand how powerful complex criterion can be -- but at the very least we'll touch on the theory and give some real-world examples of complex criteria.
Considering complex criteria can give an investor the clearest picture of a stock's true valuation regardless of its current market price. When analysts upgrade a stock from hold to buy, or downgrade a stock from buy to sell, they are examining a list of complex criterion that they've found to be good predictors of a stock's value.
A few examples of complex criteria include P/E statements, the internal rate of return, discounted cash flow analysis, and a branch of business analysis called “Technical Analysis.” Technical analysis uses complex criteria like the relative strength index of a stock along with stochastics and a company's money flow index in order to draw forward-looking conclusions that can help an investor -- or more likely a group of analysts with quite a few accountants on payroll -- determine the real intrinsic value of an investment.
Again, the above complex criteria are outside of the scope of this article, but the analysis of these criteria drives the business decisions of some of the most successful investors.
Smart Investors Make More MoneyThe bottom line is than an educated investor is a successful investor. Learning about criteria vs criterion, as well as how to visualize and use complex criteria to draw conclusions, really separates the day traders from the professionals. It's possible to make money in the market by throwing a dart at the Wall Street Journal -- as many monkeys have proven -- but in the long run education about the factors that we've discussed will provide much more consistent returns.
By Aaron Phillips
Posted in ...Investing