Fundamental Analysis 101

[murray t turtle]

We're talking about more than just Accounting ratios here aren't we? While I don't advice it, Peter Lynch made a fortune from Fundamentals. He used to call T/A "that science of the squiggles I never listened to".

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He is unusually good\ i double checked his record.
His Fidelity Magellan fund between 1977 -1990 averaged 29.2% with huge size.
More than double the S&P 500 benchmark. 20 million to $14 billion AUM But he started as a @trained analyst with Fidelity.........

 

[Cabin111]

15 years ago I was working as a subcontractor at a Hershey plant in California. Everything was falling apart. They were keeping the plant going with duck tape and super glue!! I asked management what was going on??

He said they needed to make their quarter (big bonuses). They did and the price of the stock remained high!! The next quarter they did all the repairs and replaced the necessary machinery (deferred maintenance). Son of a gun, they missed their next quarter earnings estimate...

 

[Darc]

15 years ago I was working as a subcontractor at a Hershey plant in California. Everything was falling apart. They were keeping the plant going with duck tape and super glue!! I asked management what was going on??

He said they needed to make their quarter (big bonuses). They did and the price of the stock remained high!! The next quarter they did all the repairs and replaced the necessary machinery (deferred maintenance). Son of a gun, they missed their next quarter earnings estimate...

Referring again to Peter Lynch; that's where he advises the average person has a great advantage. They work for these companies, they have access to this sort of "inside information" that may not show up in the Books quickly, that the Instos are looking at.

 

[Cabin111]

A regional bank is consolidating branches...It that a good thing or bad thing?? It depends. If you know the bank and some of their loans and standards, it could be a buying opportunity. The next quarter when they have to pay for the empty leased property and the severance pay for the employees, it can look pretty bad.

On the other hand...It can look like a great buy!!

 

[taowave]

Lynch hated TA and strongly advised against market timing and stops

And for a guy who didn't believe in diworsification,he held a ridiculous number of stocks in his portfolio...as many as 1400

We're talking about more than just Accounting ratios here aren't we? While I don't advice it, Peter Lynch made a fortune from Fundamentals. He used to call T/A "that science of the squiggles I never listened to".

 

[Peter8519]

Lynch hated TA and strongly advised against market timing and stops

And for a guy who didn't believe in diworsification,he held a ridiculous number of stocks in his portfolio...as many as 1400

Here is one paragraph in Chapter1 of One Up on Wall Street by Peter Lynch

As I look back on it now, it’s obvious that studying history and philosophy
was much better preparation for the stock market than, say, studying statistics.
Investing in stocks is an art, not a science, and people who’ve been trained to
rigidly quantify everything have a big disadvantage. If stockpicking could be
quantified, you could rent time on the nearest Cray computer and make a
fortune. But it doesn’t work that way. All the math you need in the stock market
(Chrysler’s got $1 billion in cash, $500 million in long-term debt, etc.) you get
in the fourth grade.

 

[murray t turtle]

15 years ago I was working as a subcontractor at a Hershey plant in California. Everything was falling apart. They were keeping the plant going with duck tape and super glue!! I asked management what was going on??

He said they needed to make their quarter (big bonuses). They did and the price of the stock remained high!! The next quarter they did all the repairs and replaced the necessary machinery (deferred maintenance). Son of a gun, they missed their next quarter earnings estimate...

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I think that's exactly what Peter Lynch meant , by investing in what you know\ even though he started as a metals + textiles analyst.
I'm also glad he was such a good fundamentalist+ good fund manager/big fund manager.
HSY is a buy off 200 dma; sorry its below 50 dma.
Actually i weight 200dma as much more important , but not a stock tip;
its in SPY +Vanguard has a 9.89% stake in it..............................................................................................
Excellant long term uptrend

 

[Wide Tailz]

Great comments, you elite traderz did not fail to disappoint. I'm not an expert at this, or even a hobbyist like with TA. Still turning the gears in my head to formulate the next post. But I am a diehard TA monk who has tried everything my heart desired and found only (4) methods of making money with TA after 12 years. However one of my early solo trades which doubled my account and got me totally hooked, was based on fundies. Specifically, a "trigger event" which had a yuuuuge cost to the company. Two wordz: Deepwater Horizon. I've been a closeted bear ever since!

 

[Wide Tailz]

I love T/A and have obsessed over it since the 2005 top in housing. But even then, prices were just too darn high and I knew it, being about to graduate with an engineering degree, job lined up and couldn't afford to buy a starter home in the outskirts of Portland. And there was this blog called "housing panic" that kept emphasizing "it's the P/E, stupid". Why rent the money to buy a house when you couldn't rent the house itself at a rate high enough to pay its own mortgage? It was my first taste of a real mania, and the crash that came a few years later made me realize that timing markets is the only way to financial freedom.

F/A investors time the market based on absolute value, while T/A practitioners use relative value (of support and resistance, trendlines, momentum trends, volume clues, etc). That old punchline "it's the P/E, stupid" was the investor's clue to get out of housing assets.

That is one side of the equation, and the price of money is the other. Another consequence of rising rates is the higher cost to corporations issuing bonds in order to buy back their own stocks, or just buy out other companies. And one sign of "the top" is paying way too much to buy out another company. Then the international currency flows complicate the cost of money further. However the investor's main job is to buy value, preferably with a currency that is overvalued.

I'll try to get into the basics of value calculations next time, but the main risk here is future assumptions on business conditions for companies, buyers and available funds for housing, and bodies for insurance payouts (sudden adult death syndrome is about to crash the insurance party)....

 

[Wide Tailz]

Not much interest in this topic so I'll wrap it up (and spare you the calculations) with a final thought.

There are two dimensions to fundamental analysis, the "top down / bottom up" dimension which is just macro / micro analysis.

Then there is the "absolute value / growth value / impact value" dimension which goes like this:

1. absolute value is like when any famous investor you know will buy when there's blood in the streets, and be greedy when others are fearful. Works on stocks, commodities, real estate, anything basically. The merchants of old who traveled the world knew the wholesale and retail value spread could be captured with a little travel.

2. growth value is the classic growth stock profile - sales & earnings growth, stairstep basing pattern on the price chart, "tollbooth" quality to the business, etc.

3. impact / "trigger the avalanche" is my personal favorite, and it is the sudden repricing after a disaster or buyout rumor, etc. There are always many T/A opportunities interlocked with the fundamental story. BBBY , GME, BP when the well blew out, NKLA after Hindenburg research revealed that the concept truck was just rolling down the hill, etc. This type of event can even be triggered by everyone being on one side of the trade. *hint hint*