Business Management

Technical analysis is applicable to securities where the price is only influenced by the forces of supply and demand. Technical analysis does not work well when other forces can influence the price of the security. In order to be successful, technical analysis makes three key assumptions about the securities that are being analyzed: High Liquidity - Liquidity is essentially volume. Heavily-traded stocks allow investors to trade quickly and easily, without dramatically changing the price of the stock. Thinly-traded stocks are more difficult to trade, because there aren't many buyers or sellers at any given time, so buyers and sellers may have to change their desired price considerably in order to make a trade. In addition, low liquidity stocks are often very low priced (sometimes less than a penny per share), which means that their prices can be more easily manipulated by individual investors. These outside forces acting on thinly-traded stocks make them unsuitable for technical analysis.

In The Little Book That Builds Wealth, author Pat Dorsey?the Director of Equity Research for leading independent investment research provider Morningstar, Inc.?reveals why competitive advantages, or economic moats, are such strong indicators of great long–term investments and examines four of their most common sources: intangible assets, cost advantages, customer–switching costs, and network economics. Along the way, he skillfully outlines this proven approach and reveals how you can effectively apply it to your own investment endeavors.