Schwager on Futures, Fundamental Analysis.
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Fundamental Analysis
- Thread starter jonbig04
- Start date
Quote from jonbig04:
Best way to become an expert on it? I know there are numerous resources on the internet (including ET), but is there anything you guys recommend as a must have for stock analysis? websites or books. im thinking of getting security analysis by ben graham, any other suggestions? i really want to get the basics of fundy analysis down.
My own personal order of importance:
Number 1: Learn what a statement of cash flows is. "Cash flow" is potentially the most important tool.
Number 2: Learn the balance sheet. Learn about leverage vs. equity. Learn ratios that use the balance sheet, such as current ratio, debt to equity, what book value is...etc. Understand retained earnings <------ the most important thing to understand. If you know what retained earnings is, you have direct visibility into the success or failures of a company.
Number 3: The income statement. IMO, very overrated though. Learn how to spot "earnings management", which is essentially attempts to "window dress" earnings.
My opinion is that funnymentals deal with opinion regarding what should be rather than what is. Even if you are brilliant and know where prices should be, how is that useful? I think that trend following is a simpler and more effective methodology.
Quote from nazzdak
YOOHOO-------Buffett shmuffitt. When you're eating a chicken salad sandwich and drinking Coca-Cola, do you imagine yourself to be like Warren Buffett? Can you name the next 10 wealthiest "fundamental" investors after Buffett without looking it up on google.com? You can't, can you?
Answer: Wrong, I drink water. Nope. Nope. You're correct - Nope.
I just look at what 3 do, that's all, and to be honest it's not that in depth. There's one other - it's what institutions do, so I suppose I could say 4 influences. I have a few others who I subscribe to - they called the Chinese Internet stocks, copper, gold, Chinese Stocks, oil and dollar all for huge moves and long trends way before charts had anyone interested.
As I keep saying, everything works. Charts and fundamentals work while each camp points out the others weaknesses. Hows about taking the strengths of whatever one you like, and if you don't like some technique... leave it well alone. I lean heavily to charts.
I agree with you on the power of charts, but not on their ability to tell the future to such an extent that fundamentals are worthless. Institutions have decided the opposite to be true.
YOOHOO-------Buffett shmuffitt. When you're eating a chicken salad sandwich and drinking Coca-Cola, do you imagine yourself to be like Warren Buffett? Can you name the next 10 wealthiest "fundamental" investors after Buffett without looking it up on google.com? You can't, can you?
Answer: Wrong, I drink water. Nope. Nope. You're correct - Nope.
I just look at what 3 do, that's all, and to be honest it's not that in depth. There's one other - it's what institutions do, so I suppose I could say 4 influences. I have a few others who I subscribe to - they called the Chinese Internet stocks, copper, gold, Chinese Stocks, oil and dollar all for huge moves and long trends way before charts had anyone interested.
As I keep saying, everything works. Charts and fundamentals work while each camp points out the others weaknesses. Hows about taking the strengths of whatever one you like, and if you don't like some technique... leave it well alone. I lean heavily to charts.
I agree with you on the power of charts, but not on their ability to tell the future to such an extent that fundamentals are worthless. Institutions have decided the opposite to be true.
Quote from IndexSwing:
My opinion is that funnymentals deal with opinion regarding what should be rather than what is. Even if you are brilliant and know where prices should be, how is that useful? I think that trend following is a simpler and more effective methodology.
Because fundamental analysis give you a better vision into the price movement that is happening. Is the price movement "random" or is it driven by some underlying force.
For instance, a declining retained earnings along with an increasing debt to equity ratio tells you that a company is experiencing real fundamental problems. Now, if you see the price declining with that, the "trend" is more predictable.
On the other hand, if you see a stock losing value, but "fundamentally", there isn't much wrong with it, there is a good liklihood that the movement is perhaps random and could be a good buying opportunity.
I think the real power comes with combining fundamental analysis with technical analysis.
I use the "fundies" to identify the financial position of a company, and I then use the "techies" to identify where to exit or enter a position.
Now the real "power" comes in the form of identifying a company you want to ride out a long held position with, and then ride the waves using the techies.
Quote from jonbig04:
Best way to become an expert on it? I know there are numerous resources on the internet (including ET), but is there anything you guys recommend as a must have for stock analysis? websites or books. im thinking of getting security analysis by ben graham, any other suggestions? i really want to get the basics of fundy analysis down.
I think an understanding of fundamentals are important. As I think back, I learned alot just by reading research reports, both about companies, and about the more general economy. I also read "Intelligent Investor" by Ben Graham years ago. Perhaps a trial to the Value Line Investment Survey. The have alot of analysis on all the individual companies in the ValueLine Index, plus stuff in industries, etc etc. You can learn alot from it.
Some books I have read that I thought had some good info in them are "The Little Book of Value Investing", The Dhandho Investor, and "The Little Book That Beats the Market". Maybe some Peter Lynch stuff.
I'd also take a look at Investors Business Daily, along with the books by William O'Neil. O'Neil's technique is a melding of fundamental and technical, and gives you some practical guidelines on particular aspect of fundamentals.
Finally, Barron's gives lots of fundamental information on a steady basis. Maybe add to that the Wall Street Journal. You can get both online. Investors Business Dailyl is online as well.
I was never much on classes, but they are probably good too. Over the years I've read and studied the above and more.
OldTrader
Quote from jonbig04:
Best way to become an expert on it? I know there are numerous resources on the internet (including ET), but is there anything you guys recommend as a must have for stock analysis? websites or books. im thinking of getting security analysis by ben graham, any other suggestions? i really want to get the basics of fundy analysis down.
I went through the basic education for doing this (MBA,CFA) and would not recommend "pure" fundamental analysis for trading. I'm not saying its not worth learning for some other reason but I would not have high expectations for using it to trade.
If you go through the basics of creating a discounted cash flow model, you get a fair price out of it and compare this to the market price. It is a lot of work and you have to constantly update it. The pros usually can only cover 10-30 stocks working full time. And you are "competing" with these guys, who do nothing else all day and can get the CEO/CFO on the phone, talk to customers, etc.
But if you actually build a DCF model, then you will find that changing some seemingly small assumption has huge effect on the result. And even if you nail it, you have to count on the market eventually realizing that is the right price and getting there before you give up or something changes the fair price. Plus you will probably be pissed off if you go through all that work for the 5-10 stocks you can handle and then find they are all fairly valued and there is nothing to trade on.
If you are into doing something related to fundamentals you might have better luck coming up with some relative value/ quantitative equity strategies using fundamental data. Like more complicated versions of buy stocks with a low P/E and sell stocks with a high P/E or something like that. A really good strategy of this type might get you market-uncorrelated returns in the high teens or twenties with large long-short portfolios, rebalanced monthly.
You could also try things like studying reactions to earnings releases or looking through financial statements for red flags.
i want ask about the best strategy should i want to deal in forex trading with a big number of lots
Concentrating on price is for trading. Concentrating on fundamentals is for investing. Do not mix one with the other, but naturally even when investing and the company etc invested in can be way overpriced. So it looks like price rules.
Here is a fact of life when trading, investing with real money (paper traders never will learn this) the best lessons learned and the lessons that sink into the brain are the lessons that cost you dearly. The more you screwup and lose the more the lessons learned will be (better be) learned and not repeated.
The easy stuff in trading is the hardest to learn. .. KISS
Here is a fact of life when trading, investing with real money (paper traders never will learn this) the best lessons learned and the lessons that sink into the brain are the lessons that cost you dearly. The more you screwup and lose the more the lessons learned will be (better be) learned and not repeated.
The easy stuff in trading is the hardest to learn. .. KISS
Quote from bighog:
Concentrating on price is for trading. Concentrating on fundamentals is for investing. Do not mix one with the other, but naturally even when investing and the company etc invested in can be way overpriced. So it looks like price rules.
Here is a fact of life when trading, investing with real money (paper traders never will learn this) the best lessons learned and the lessons that sink into the brain are the lessons that cost you dearly. The more you screwup and lose the more the lessons learned will be (better be) learned and not repeated.
The easy stuff in trading is the hardest to learn. .. KISS
A couple of basic comments. I agree with the investing vs. trading aspect of fundamental analysis with the exception of correlated pairs trading.
My brother has a good size chunk of our money in about 350 pairs at this point in time, and he actively trades 100K shares a day or more to keep the positions working well.
We use very detailed fundamentals for determining long vs. short stocks prior to ever putting on a trade. One of my nieces works about 30 hours per week doing research in this arena.
My brother says that if we're going to own something for an hour, a week, or a year, we should feel as confident in that purchase as if we were going to hold it for 10 years or more.
Since were all accountants by education, fundamental analysis is really basic and easy for us. I suggest accounting classes for all investor/traders.
In the college classes I teach I pull the same joke on everyone (trader accounting humor, LOL). I ask for people's biggest stock holdings, they tell me. I ask them for the book value of that holding, by share. Of course they never know. Then I ask them how much their car is worth within a couple of grand, and yes, they all know that. So my obvious response is "well, interesting, you know more about a $20k car than a $400K investment'....makes them start thinking.
FWIW,
Don