Fundamental Analysis

Quote from Don Bright:

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
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Spot on Don. I agree 100%. It doesn't matter what your time-frame is, if you buy a fundamentally strong company with an upward bias, or a weak company with downward spiral, you are ahead of the game. Now you understand the price action and can be confident.
 
Quote from tradestrong:

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.
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Growth is also very important in order to determine the company direction IMO.

sg20
 
Reminds me of an argument between a technicals and a fundamentals trader.

While arguing over dinner, the technician dropped his steak knife.

They both were transfixed, watching it fall to the floor. Into the foot of the fundamentals trader.

The technician yelled "Why didn't you move your foot?"

The fundamentalist said "I was waiting for it to go back up!!!"
 
Quote from TraderZones:

Reminds me of an argument between a technicals and a fundamentals trader.

While arguing over dinner, the technician dropped his steak knife.

They both were transfixed, watching it fall to the floor. Into the foot of the fundamentals trader.

The technician yelled "Why didn't you move your foot?"

The fundamentalist said "I was waiting for it to go back up!!!"
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Well then that "fundamentalist" didn't know how to read a balance sheet and a cash flow statement, because if he did, he would have moved his foot as the steak knife dropped and asked the waitor for a new steak knife. :p
 
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