Introduction to Fundamental Analysis
For most long term investors, fundamental analysis is the cornerstone of good stock selection. A careful study of factors other than the isolated share price can reveal much about a company's ability to grow and thrive even in difficult market conditions.
But what is fundamental analysis?
Fundamental Analysis Definition
Fundamental analysis is the study of economic and company related factors that will influence share price. Technical analysis is the study of share price and volume being traded to determine the direction of the stock. Fundamental analysis broadly takes in pretty much everything else that could affect share price other chart patterns.
Fundamental analysis tries to place a valuated price tag on stocks in two broad ways: quantitative and qualitative.
Quantitative Analysis of Fundamentals
Quantitative analysis is the study of anything that has a number associated with it. Examples of quantitative numbers are:
- How much money did the company make last year?
- By much debt does the company have?
- What is the ratio of profit made to cash on hand?
Qualitative Analysis of Fundamentals
Qualitative analysis is less tangible than quantitative. These are usually not clear cut numbers that can be plugged into a valuation formula. Instead the qualitative analysis might probe into such areas as:
- How smart does the management team seem?
- What proprietary technology does the company have?
- Is the company straightforward and simple to run or are there many complex parts that can lead to efficiency problems?
- Is the industry group a sustainable concept or just the flavor of the week?
Warren Buffet is perhaps one of the most widely recognized individuals that combines quantitative and qualitative analysis to invest in "wonderful" companies. Seeing as he was the richest man in the world in 2008 with a net worth of over 62 billion dollars at that time, fundamental analysis is definitely worth another look in both quantitative and qualitative fields.
Fundamental Analysis Articles
- Fundamental Analysis of Stocks: Qualitative Factors of the Company
Fundamental analysis includes looking at Qualitative Factors of the Company. These factors can include The Management Team, The Business Model, The Competitive Edge & Corporate Governance Policies.
- Fundamental Analysis of Stocks: Qualitative Factors of the Industry
Fundamental analysis includes looking at Qualitative Factors of the industry. When looking at Fundamental Qualitative Factors consider the following areas Sustainability of Industry, Growth of Industry, Company’s market share of industry, Amount of competing companies & Regulations surrounding the industry.
- Fundamental Analysis: Qualitative Factors, Book and Price to Book Ratio
Fundamental Analysis. Looking at Qualitative Factors including Book and Price to Book Ratio. Learn how to dissect a company and try to add the sum of the parts.
- Fundamental Analysis: Qualitative Factors, Earnings Per Share (EPS)
Understanding earnings per share (eps) is one of the most important aspects of fundamental quantitative analysis and is the basis for numerous other ratios such as growth.
- Fundamental Analysis: Qualitative Factors, Price to Earning (P/E) and PEG
Knowing the P/E and the PEG are two important aspects of fundamental analysis. These ratios can tell you the relative valuation of a stock as compared to its industry, the market, and its own future growth.
- Fundamental Analysis: Qualitative Factors, Short Interest
What could possibly cause a stock to double its value in one day? The answer: the short squeeze. We will now analyze this interesting phenomenon by looking at the underlying cause of such a boost which is the "short interest".
- Warren Buffett: A genius investor, a philanthropist, and a role model for citizens
Warren Buffet has a magical blend of qualities that every investor covets: he can discern value, has unending patience, and iron-will discipline. Warren has the uncanny ability to pick a winning stock amidst thousands of lack-luster ones. Here are some Warren Buffett famous quotes.
- Benjamin Graham: Father of value investing
Benjamin Graham is another one of those founding fathers to the fundamental analysis practice we have today. Warren Buffet himself, the richest man in the world in 2008 with a net worth of over 62 billion dollars, described himself as "85 percent Graham".
- Peter Lynch
Peter Lynch is undoubtedly one of the greatest investment minds alive today. To sum up the style of investment by Peter Lynch is not easy. He tirelessly works to ensure each stock is up to his very high standards.
- Phillip Fisher
Another legendary titan in the investing arena was a man by the name of Philip Fisher. By many he is considered to be the founding father of high growth investing. His book Common Stock and Uncommon Profits published in 1958 propelled this highly intelligent investor into the limelight.