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How do I choose the right shares?

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It is not a good idea to buy a share because you like the company's name or because your neighbour is wild about it. If you want to buy a share, you first research whether it is worth buying.

There is no lack of analysis for anyone who wants to invest. A search for stock analysis on Google already throws up over 1.4 billion results.

The analysis methods can be divided into 4 broad groups: fundamental, technical and quantitative analysis, and finally analysis based on (market) sentiment. In most of these methods, you can choose between a bottom-up or a sector/top-down approach.

There is no such thing as a "good" or "bad" analysis method. Each type of analysis has its pro's and con's. Some methods overlap with others, while others are at right angles to each other. There is nothing to prevent you from combining techniques.

Good to know: you can find a lot of data to help make informed choices on Log in to, search for a share, and then select one of the profile, technical analysis or global analyzer tabs.

The basics at a glance:

Bottom-up approach

In a bottom-up analysis, you assess the potential of a share based on its strengths and weaknesses. This can be done, among other ways, by looking at the profit margins, the quality of the management and the current valuation of the share compared to other shares. Or by using technical indicators.

Strictly speaking, this method of analysis does not take market or economic cycles into account. Whether the stock market or the economy is doing badly or well is irrelevant. Instead, in a pure bottom-up approach, you look at the best companies and shares, regardless of the state of the economy and the market.

Sector, trend and top-down approach

In a sector analysis or trend analysis, you examine a specific sector or trend in depth, for example the mining sector or the ageing population trend. Within this, you are looking for those shares that may perform best compared to their peers. This method is typically used by investors who specialise in a particular sector or a megatrend, or those who adopt a sector rotation or top-down approach.

A pure top-down approach or funnel method means that you first make your assessment of the economic climate. This includes analysing unemployment figures, growth, interest rates, inflation and other indicators. You then look for the sectors that could perform best in this economic climate or trend. You then pick the winning shares from these sectors.

Investors who apply sector rotation buy and sell their shares according to trends that affect the profitability of sectors. Suppose you believe that economic trends will mean the financial and automobile sectors outperform the technology and pharmaceutical sectors. You therefore sell your shares in technology and pharmaceuticals and buy the shares you expect to perform best in the financial and automotive sectors.

4 ways to analyse equities

1. Fundamental analysis

Using fundamental analysis, you determine whether the future value of a company is correctly reflected in the current price of the share.

Fundamental analysis seeks to estimate the value of a share based on a series of factors. These may be financial, such as earnings per share, dividend yield and price/earnings ratio. In addition, fixed assets (land, equipment or buildings owned by a company) and intangible assets (trademarks, patents or intellectual property) may also be taken into account.

Fundamental analysis is often based on financial reports, historical business data, conference calls with investors, press releases, analysts' reports, etc.

After analysing all these figures, you judge whether the market has underestimated or overestimated the future prospects for the company. The more a share is underestimated, the more attractive the opportunity to buy the share.

For a fundamental analysis, you can start from either a bottom-up or a top-down strategy, including macroeconomic indicators (growth, inflation, interest rates, etc.), or not.

You can find a lot of data to prepare a fundamental analysis on Locate the share, then select the profile tab.

2. Technical analysis

In technical analysis, you assess a share using market activity data points (especially share prices and trading volumes) to identify patterns.

While fundamental analysis seeks to determine the intrinsic value of a share, the purpose of technical analysis is to provide an insight into the future price trends of a share. With technical analysis, you are trying to predict performance by studying patterns based on performance in the (recent) past.

Technical analysis uses short term data to predict price movements, while fundamental analysis is based on information that often spans years. That’s why investors use technical analysis mainly for short-term trading, that is buying shares and selling them again quickly.

Tools for performing a technical analysis can be found at Log in to, locate the share, and then select the technical analysis tab.

3. Quantitative analysis

Nowadays, computers can analyse huge amounts of data in an extraordinarily short time. Quantitative analysis is a method that has grown out of this. This approach focuses on mathematical and statistical analysis to determine the value of a share. Quantitative analysts (also known as "quants") build algorithms and computer models on the basis of a huge number of data flows.

Pure quantitative analysis will not tell you anything about the company’s sales forecasts, the quality of the management team, its product quality or any other aspect of the business. That is why this method is much closer to technical analysis than fundamental analysis.

4. Analysis based on (market) sentiment

This method has been getting increasing attention in recent years. It is a technique based mainly on market psychology and opinion shaping, and can be used to complement fundamental, quantitative and technical analysis.

Investors use models that hunt down trends on (social) media platforms, forums or other online platforms: opinions, beliefs, feelings, moods, etc. Artificial intelligence can help find patterns and links between sentiment and historical market developments.

Under this umbrella you will also find all kinds of fear barometers such as the VIX and the Fear & Greed index. These are not based on tweets or reader comments, but on fundamental and technical indicators. They give an indication of market sentiment.

Need help?

There are various ways of analysing shares. Performing your own analyses takes a lot of time and dedication. That is why we let you use our Global Analyzer at Keytrade Bank. This tool gives you an instant overview of various different analyses of a share: the valuation, the conclusions of professional analysts, technical analysis, financial health and risk. Log in to, locate the share, and then select the Global Analyzer tab.

This article does not contain any investment advice or recommendation, nor a financial analysis. Nothing in this article may be construed as information with a contractual value of any sort whatsoever. This article is intended for information only and does not constitute in any way a commercialization of financial products. Keytrade Bank cannot be held liable for any decision made based on the information contained in this article, nor for its use by third parties. Every investment entails risks such as a possible loss of capital. Before investing in financial instruments, please inform yourself properly and read carefully the document "Overview of the principal characteristics and risks of financial instruments" that you can find in the Document centre.

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