Skip to main content

Fundamental vs Technical Anlaysis

There is always a dilemma for investors when it comes to investing in equities, that is whether to use fundamental analysis or technical analysis. Private and institutional investors use fundamental analysis as their basis for stock purchases, while short-term traders use technical analysis. Since the risk-reward ratio and time horizons used in investing and trading are very different, it makes sense that these two different methods are employed. Investing and trading are very different animals, and their differences are characterized by the investing processes that fundamental and technical analysis illustrate.

Fundamental analysis relies on economic supply and demand information for the long term and company's financial health in the short term. An investor is informed of these conditions by a stocks annual growth rate, five-year, one-year, and quarterly earnings records, and P/E (price-to-earnings) ratios. Investors reliant on fundamentals are more interested ina stock's performance year to year than they are in market behavior. They do not fret when the market plunges one day and surges another, because their goal is the end result of steady, conservative growth.

Although fundamental analysis provides highly valuable information, many people do not have the time required to research the fundamentals. Taking an hour or more to research one company's new product potential and compare present and past earnings is too much for some, but certain fundamental concepts are simply invaluable. One such statistic is the EPS, or earnings-per-share ranking. Earnings-per-share are calculated by dividing a company's total after-tax profits by the company's number of common shares outstanding. You'll want to compare the EPS of the company in question to other comparable companies in the sector to see how your investment stacks up within the industry.

Technical Analysis is the alternate method of stock research, focused on the study of timing, price fluctuation, and investor sentiment. The most common method of technical analysis is conducted with a chart that shows a stock's price history. We know that the prices represented in the chart do not occur randomly, and it is the collective mindset of all investors that creates prices. These buyers and sellers create patterns because they operate from memory. Different types of charts can be configured to show a wide variety of indicators and everyone has their personal favorites. By analyzing charts and price history a trader can attempt to predict market sentiment and stock price movement, but this is far from an objective science.

Technical analysis and fundamental analysis are the two basic sectors of reasoning that constitute the way investors and traders go about choosing stocks, and you must follow your own financial strengths in determining whether trading or investing, and technical or fundamental analysis are right for you.

Popular posts from this blog

Historical Sensex Returns Updated - 2024

Historically Sensex has given returns of about 15% per year, despite volatility and price fluctuations of about -20% to +60%. The following table shows S&P BSE Sensex historical data - start  & close values and the yearly returns of the sensex from 2000 to 2024. So far during the year the   index has hit an all-time high of  75,124   and despite markets hitting all time highs not all stocks make all-time highs. There are many stocks still below their highs. Stocks like HDFC Bank, ITC, Asian paints are still well below their highs and some of them have given low returns over last 3-5 years. Individual or Retail investors can achieve consistent returns through investing via mutual funds , whether it be active or passive. Chasing returns from individual stocks is futile. Be a wise investor !

Walmart and Costco Selling Gold and Silver

Costco Wholesale and Walmart are both starting to sell gold bars. First, Costco sold gold bars to its members looking to invest in more than bulk household purchases. Now the warehouse retailer is selling silver coins too. Walmart has also started selling precious metals such as gold and silver in its online store, following in the footsteps of Costco Wholesale. Against the backdrop of high inflation, gold has become the new favorite of American consumers. The value of gold and silver is expected to continue to climb in 2024 on expectations that the Federal Reserve will start cutting interest rates. Gold currently trades at $2255. Will Indian supermarkets sell gold?  Gold has been always been one of the favorite investments for Indians, as evident from the fact that Indian households hold over 21,000 tonnes of gold. Indians prefer to buy gold jewelry and this trend could change if Gold is sold in supermarkets. There are Gold ETFs and Sovereign Gold Bonds  (SGB) as well. Addi...