(host 1) When I was just a newborn, my grandmother generously gifted me a certificate for a single share of Disney stock to celebrate.

The price?

$1.40.

(host 2) Decades later, we fished that certificate out of our safe and did a little research.

Turns out, that little single share had made some friends.

Through multiple stock splits and dividend investment, we now owned over 50 shares.

On top of that, the share price had grown to about $35 each, so, in 2007, we sold the shares for around $1600 which we ended up putting towards the down payment on our first house.

(host 1) All told, I realized a whopping 114,100% return on that investment.

Way to go, baby Philip.

(host 2) Okay, Mr. Boss Baby.

Don't forget--that was thanks to your nana.

But now that you can tie your own shoes and have all these fancy financial licenses, do you have what it takes to pick a winner like she did all those years ago?

Not only did I learn to tie my shoes-- thank you very much-- but I've also learned that there's a lot more to picking stocks than following a gut instinct or what I see on Reddit.

Today, we're going to explore the tools you can use to become your very own baby Philip Moneybags.

Mustache twirling required.

[whimsical intro music] [coins jangling] Let's say a certain company has caught your eye.

Maybe they make a product you love; maybe you keep seeing their name pop up on wallstreetbets.

Or maybe you simply work for the company and have an opportunity to become a shareholder.

Before tapping that "buy" button on your trading app, it might be a good idea to "kick the tires," so to speak.

Most methods of analyzing stocks fall into two major categories: technical analysis and fundamental analysis.

They're often portrayed as locked in an eternal battle for supremacy.

Same goal; different tactics.

So which camp comes out on top?

Let's start by looking at the technician.

(host 2) If you've ever seen a day trader at a coffeeshop, or those huge stock terminals on TV with squiggly lines and red and green columns, then you've seen technical analysis in action.

This discipline focuses on tracking price movement and trading volume of a company's stock.

What they're looking at are historical patterns-- patterns that will clue them in to opportunities to sell or buy a stock at a profit based on the data.

This often requires extensive research of past trends, sophisticated trading models, and a healthy does of technology to execute when they recognize the signal they're looking for.

These repeatable patterns are discovered through something called back-testing.

Back-testing is a critical concept to the technician.

It suggests that specific movements of the stock price or trading volume will be repeated in the future.

Here's an example of the cup & handle.

Here's a candlestick, and of course the falling knife.

Many traders develop entire strategies around a single pattern or a combination of multiples.

But mapping the stock price alone isn't the only factor they consider.

Another is the moving average.

This is a constantly updating average price, or trading volume, of a stock.

One classic use of this particular indicator is the crossover strategy.

This strategy looks for a share price to fall below or climb above a moving average-- hence "crossover."

They use these shifts as a signal to buy or sell out of their position.

But crossovers are just the beginning.

Strategies like pennants, flags, or triangles are other configurations analysts might look for.

Whew!

Now that our brains are good and scrambled, let's visit the other side-- the fundamentalist.

(host 1) Fundamental analysts aren't concerned with all the squiggly lines and fine details of a stock's movement.

Instead, fundamentalists focus on the overall strength and financial stability of a company.

They ask questions like, "How profitable were they last year?

"Are they in a strong position "to weather an economic downturn?

Are they currently undervalued?"

Obviously, you can't just set a meeting with the CFO to get answers to these questions, so these investors rely on a few specific formulas.

If you were to do an online search for any company's stock, you'll likely come across two essential fundamental indicators: earnings per share, or EPS, and price-to-earnings, or P/E.

EPS for a company is found by taking the company's net income, subtracting preferred dividends, if any, then dividing that number by the number of shares outstanding.

The higher the EPS, the more profitable the company.

Then if you take their EPS and divide it into the current stock's share price, you'll have your P/E ratio.

These ratios will allow you to compare a stock apples to apples, or Apple to Samsung.

For example, let's say you're interested in two companies: Donut Dragons and Cupcake Queens.

After you run the numbers, you see that Donut Dragons has a higher EPS than Cupcake Queens, suggesting a higher profitability.

Further crunching reveals that Donut Dragons also has a lower P/E ratio than Cupcake Queens, meaning it might be a cheaper buy.

Analysts use all kinds of creative ratios like this to help measure the fundamental value of one company over another.

I'll admit, the idea that I can just use math to make money is really appealing.

It gives the individual a sense of control over something as uncontrollable as an economic market.

And even though these two analytical paths can help you make a more informed decision, we can't forget that there are important aspects to a company's health that are neither technical nor fundamental in nature.

These are known as qualitative elements.

Does that company have a durable competitive advantage?

How's the management at the top?

What's their turnover like?

What direction does this company's industry seem to be heading?

Even if you're able to find some of this out, the information is going to be interpreted through the lens of your personal feelings.

Maybe you feel that a company, while booming now, is ultimately doomed due to climate change.

Maybe after hearing about a leadership scandal, you decide to sell despite what the P/E ratio might tell you.

That's okay.

You should allow space for your excitement and personal values to have a seat at the decision-making table.

(host 2) So which of these philosophies ultimately wins out?

Should you lean into technical analysis or focus on fundamentals?

Maybe qualitative research is ultimately the most important.

For many investors, professional and novice alike, these different approaches actually aren't in a battle at all.

Instead, when used in tandem, they complement each other.

In 2019, Warren Buffet told his shareholders his three general rules for choosing a company to invest in: "First, they must earn good returns "on the net tangible capital required in their operation.

"Second, they must be run by able and honest managers.

Finally, they must be available at a sensible price."

As you can see, even the Oracle of Omaha uses a three-pronged approach.

Now, if all this makes your head spin, that's okay.

This kind of stuff isn't for everyone.

And you don't have to do it in order to be a successful investor.

But if solving this puzzle and picking stocks is of interest to you and you have time, go for it.

Start small and do your own work to verify anything you might see on the Internet.

The point of all this isn't to become some sort of magical stock soothsayer, impervious to losses.

Rest assured, there is no such thing.

The goal is to make you a more confident and informed investor.

(both) And that's our "Two Cents."