Introduction To Fundamental Analysis: Stock Tips
On this blog, we look at tips and tricks to frugal living, but we also seek to learn new things that help us become better investors. My aim is to build a reader base made up of savers and discerning investors that can build a secure financial future for themselves. So while it would be easy for me to carry out an analysis and tell you what you should and shouldn’t invest in, I seek to educate, even as I learn. Let’s invest together.
Today, we learn a new term in stocks investing called Fundamental Analysis. There are many ways to establish which stocks to invest in, among them; guess work, emotion, technical analysis, and fundamental analysis. On this blog, we will study the last two, starting with fundamental analysis today.
1. Quantitative Analysis: This is an analysis of factors that can be measured or expressed in numerical terms, that is the numerical characteristics about a business. The biggest source of this kind of data is the company’s financial statements or accounts.
2. Qualitative Analysis is a study of other factors that aren’t numerical but are related to the character of the business and affect it’s success
When carrying out Fundamental Analysis, you look at both qualitative and quantitative factors. For example, when considering Safaricom, you cannot overlook it’s brand (a qualitative factor), and the effect of that on the company’s value. While there are many mobile network operators, Safaricom is easily the most recognizable brand in Kenya right now. A good analyst will use this information to educate his valuation of Safaricom’s shares.
Fundamental Analysis also assumes that in the long run, the market will adjust to reflect the fundamental value of the shares. What’s important to note here is that “long run” can be years or days, and is different for different stocks, and that our calculations are merely indicative, not perfect.
All analysis you carry out should serve as a guide, with the knowledge that loss is always a possibility when it comes to investing.
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