Top performing stock investors rely on thoroughly researching the companies' prospects to determine whether they are potentially good investment candidates. These investors rarely make a stock investment on a whim. They assess the upside rewards and downside risks to determine what action is to be taken. If the potential returns are significantly higher than the potential losses, investing in the stock makes financial sense. Being sufficiently informed about the companies of interest increases the investor's odds of making a profitable investment.

When researching stocks, investors commonly use two types of analysis. The first is known as fundamental analysis. This looks into the company's business fundamentals, such as their balance sheets, their financial performance, the competence of their executives and ability to compete going forward. Fundamental analysis also takes into account the health of the overall economy and interest rates when evaluating the company's future prospects. Long-term stock investors tend to rely more on this type of analysis.

The other approach to analyzing stocks is technical analysis. This process looks at the company's past stock trading activity to determine future price movements. It includes analyzing the stock chart and scrutinizing trading volume. The goal is find recognizable behavioral stock patterns to predict future behavior. The short-term stock investor or trader leans more towards technical analysis than fundamental analysis. Many investors tend to incorporate both when making investment decisions on stocks.