Technical Vs. Fundamental Analysis: Strategic Choices For Canadian Traders – Welcome to an exciting new blog series: Fundamental Analysis In this multi-part series, we’ll delve into various aspects of fundamental analysis, exploring different strategies and how it can improve your investment decisions. Today we’ll cover Part 2: Unleashing the Power of Qualitative Fundamentals: Key Considerations in Fundamental Analysis.
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Technical Vs. Fundamental Analysis: Strategic Choices For Canadian Traders
🏢 When analyzing a company, there are some qualitative fundamentals that can be taken into account. These may include:
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🟣 Business Operations: What does the company do? This may not be as simple as it seems. For example, does a company that sells fast-food chicken primarily make profits through sales or through royalties and franchise fees?
🟣 Competitive advantage: the long-term success of a company largely depends on its ability to sustain a competitive advantage and protect it. A strong competitive advantage, such as the Coca-Cola brand or Microsoft’s control of the personal computer operating system, creates a barrier around the business and allows it to keep competitors at bay, which can lead to growth and profits over time. However, it is important to remember that there is no foolproof strategy and market behavior can be unpredictable.
🟣 Leadership: Some consider management to be the most crucial factor in investing in a company. After all, even the best business model can fail if company leaders don’t execute it right. While it can be challenging for retail investors to meet and evaluate managers, they can review the corporate website and review the resumes of top executives and board members. Ask yourself questions like: How well did they perform in previous positions? Have they sold a lot of their stock lately?
🟣 Corporate governance: refers to the policies within a company that outline the relationships and responsibilities between management, directors and stakeholders. These policies are set forth in the company’s articles of incorporation, bylaws, and corporate laws and regulations. You can invest in companies that operate ethically, fairly, transparently and efficiently, and take into account management’s respect for the rights and interests of shareholders. It is important to consider their communication with shareholders is transparent, clear and easy to understand.
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🟣 Industry: It’s also important to consider the company’s industry, such as customer base, market share among competitors, industry-wide growth, competition, regulations, and business cycles. Understanding how the industry works can provide deeper insight into a company’s financial health.
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Fundamental analysis aims to identify markets that are under or overvalued by considering the economic and financial factors that affect their intrinsic value. Learn about fundamental analysis and how to use it in trading.
Fundamental analysis is a means by which a trader assesses the intrinsic value of an asset by taking a holistic approach to the markets. As a result, a fundamental analyst might look at a number of factors as the basis for their investment decisions.
Fundamental analysis can be applied to many markets – including currency and commodities – but for this article, we’ll be looking primarily at stocks.
Process Of Fundamental Analysis Pdf
Fundamental analysis is important because it can be used to assess the intrinsic value of a company and therefore whether it is under or overvalued. This can help traders decide whether they want to open or close a position.
Intrinsic value refers to the actual (or “true”) value of a stock, rather than its current market value. For example, if a stock has been overvalued in the market, it could be susceptible to a rapid decline at some point in the future.
Also, if the stock has been undervalued in the market, it could be an opportunity for a trader to get in early and make a big profit once the market value is adjusted to reflect the intrinsic value.
To determine whether a stock is trading at its intrinsic value, individuals might look at a company’s management team, financial statements, or the company’s market share.
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Fundamental analysis looks at the factors that separate one company from another, allowing traders to assess what makes that company better than others in its sector. For example, the difference in the success of one company over another could be its executive team. If this were the case, fundamental analysts should look at the following before opening a position:
Other factors that underlie fundamental analysis include the company’s profit and loss statement, cash flow statement, and income statement. A basic example of a profit and loss statement can be seen below.
A trader would use this statement to assess how the company is being run and whether it is able to make a profit. It is through this analysis that the trader will decide to open or close a position, depending on how profitable the company perceives it to be.
Fundamental analysis works best when a number of different factors have been analyzed, both macro and microeconomically. This is because, unlike technical analysis – which looks primarily at quantitative data – fundamental analysis has the luxury of looking at a combination of quantitative and qualitative data to assess a company’s profitability.
The Basics Of Documenting And Analyzing Your As Is Process
Fundamental analysis can be quantitative or qualitative. As a result, it can be used to analyze the sector, industry, firm or market.
The fact that fundamental analysis can be both quantitative and qualitative is a huge benefit because it means traders can base their decisions on more than just what the numbers show. As seen with companies like Twitter—which didn’t turn a profit until the fourth quarter (Q4) of 2017—numbers aren’t always the surefire way to gauge whether a company has the potential to turn a profit.
Instead, a trader needs to look at the qualitative factors that can show whether the company has something unique – or is being run in a certain way that has the potential to generate profit for years to come, at the expense of a loss in the near future.
Instead of looking at the bigger picture, technical analysis is concerned with the historical price movements of an asset. By looking at charts and using patterns to gauge the behavior of market participants, technical analysts hope to predict the future price movements of an asset.
Data Driven Decision Making
Technical analysis relies heavily on chart patterns and moving averages. As a result, technical analysis requires a thorough knowledge of—and sufficient skill to identify—graphic patterns and what each pattern means for a stock’s future price movements.
On the other hand, fundamental analysis requires less specialized knowledge of technical indicators. Instead, fundamental analysts should have an in-depth knowledge of their chosen market and sector so they know how to quickly and
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