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Fundamental Analysis and Technical Analysis



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  • Methods of Evaluating company shares*

In our long term investment journey, what we have to learn is

.. to identify and distinguish between good stocks from the bad stocks by doing some *analysis*.

Analysis = Process of detailed examination of each of its components

When it comes to companies and shares, there are two popular analysis methods.

These are:

1. Fundamental Analysis

2. Technical Analysis

In *Fundamental Analysis*, we do a detailed study

1. About the company, its business, its financials, its valuations, its cash flow, its balance sheets etc.

2. About the industry / sector in which the company operates

3. The market on the whole

4. micro and macro news that impact all the above.

Do not worry if you do not know about any term above. We will see them all in detail later.

For now, u should understand what things will come under fundamental analysis.

A person who does the study of Fundamental Analysis is called a *Fundamental Analyst*.

Fundamental Analysis is actually academically studied in commerce studies, like BCom and MCom.

Some people study it in the paper related to Portfolio Analysis and Review Techniques

Now, you read news paper and there is news that Reliance Jio will be a great 4G telecom company.

Such news excites us!

Newspapers are one of the first source of information for our analysis

If you follow the news closely, you will:

1. identify that Reliance Industries is now also into telecom sector,

2. study financial ratios and read balance sheets etc of Reliance Industries,

3. study the news related to telecom sector,

This type of study is called *Fundamental Analysis*.

Understood ?

The other method of analysis is *Technical Analysis*

In Technical Analysis,

1. we use charts and graphs

2. to predict the correct entry price to invest in a stock

3. and the correct exit price to book profits.

In this method, we study chart of the stock movement over a period of time

like how the stock price of Reliance Industries performed

.. 1 day before (i.e yesterday)

.. 5 days before

.. 1 month ago

.. 3 months ago

.. 6 months ago or

.. 52-weeks ago

and see how it is going up and down

and based on this data, try to predict its future moment

using some *charting techniques*,

It is called *Technical Analysis*

For a stock market participant, both the methods are useful and essential.

We cannot use just one method and ignore the other.

In these tutorial sessions, I will be dealing with stock fundamentals.

We will use a bit of technicals as well but only to a certain extent.

If you are interested to research about a company in terms of stock technicals, we can do it at http://www.topstockresearch.com/

We need not require special subscriptions or paid services to do any analysis.

We use data from public sources, such as the company website, stock exchange websites and analysis websites like Money Control, Economic Times, Google Finance, Investing.com etc.

In general,

  • long term investors* need to be very strong in fundamentals over technicals.

And

  • intraday traders* need to be strong with technicals over fundamentals.

When we want to invest in a stock / share, we need to study about it.

Right?

I will tell the same thing in a different way.

  • Before you buy a stock, study it well.*

One more way of telling the same thing is,

  • Do not buy any stock without properly studying it*

You may feel that you already know this and understood it well.

Yet, tomorrow morning, you open Whatsapp, you look for expert calls and start buying shares without doing any study.

Being focussed is a very difficult thing in stock markets.

Because there are several factors that change our views and distract us.

This is one reason why

.. very simple people who do just the basic analysis will earn

.. more than one who studies a lot but makes several small mistakes.

What most people do in stock market is:

First they buy the stock.

The stock price falls down.

Then they begin studying about the stock.

Then they curse why they have bought the stock in the first place.

Do not invest in any stock without understanding the business of that company.

Because, you may risking losing some or all of your money.

Question:

Should we look out for break out in techicals then see the fundamentals ...or it is vice versa ....

As i was telling, for long term investing, fundamentals are more imp than technicals

For short term investing, technicals are more imp over fundamentls

If you have a fudamentally good stock and if u feel technically it is not ready yet, then just hold and wait.

A combination of TA + FA can do wonders for positional traders / short or medium term investors.