Some very common question that I often get are what makes the share market work? Who decides what price the share will be? How does the share price move up and down? And should I use fundamental or technical analysis?

A simple answer to the first three questions is the Market.

However the last question usually requires a little more explanation.

Some people believe that fundamental analysis alone will make them money. Some people think that fundamental information about the nature of a business, its balance sheet, the state of the economy and other such factors are the key to making money through share market investing.

For sure, that can help but they in themselves are not a completer answer. The price of a share is made by a match between a buyer and a seller. Very often that has little to do with the financial health of a company or the economy.

In any case, there are so many factors that it is not possible to get a reliable model that works consistently.

This is why I generally stick to the top 100 blue chip companies. Their fundamentals are generally very good and they have a strong market capitalisation. In addition to this there is never a concern about volume. In saying this there have been some notable exceptions. HIH in Australia was a leading company until it collapsed and Enron in the US had a similar problem.

However fraud is difficult to pick up through fundamental analysis because you are relying on the companies reports anyway.

Secondly there are those that believe charting and technical analysis is the key to making money

For sure, that can help but that by itself is not a complete answer. Again the price of a share is made by a match between a buyer and a seller. That can easily be seen in a chart, as can the price trend and relative price performance of the share.

So dont rely on fundamental analysis and dont rely on technical analysis, great Phil, what do we do. The answer lies in developing your skills.

One of my all time favourite quotes is that the share market is where people with money meet people with experience. The people with experience get the money and the people with money get the experience.

So firstly educate yourself with as much knowledge as you want. It usually helps if the knowledge is not purely theoretical and is almost practically applicable ie a method to select the right shares. Secondly make sure that you practice what you have learned before putting your money at risk. This way you can still get the experience without loosing your capital. After you have practiced review your work and learn where you made your mistakes. If you are unsure then seek help. Finally start investing with your real capital.