Fundamental investing
Fundamental analysis is the antithesis of technical analysis in that it involves an assessment of a company’s‘fundamentals’. These can include such things as the company’s financial position, growth prospects, industry conditions and its management. No assessment is made of price or volume movements or investor psychology.
Fundamental analysts typically examine a company’s balance sheet, income statement and cash flows, as well as numerous other factors, to arrive at a ‘valuation’ of the company—an assessment of what it is worth as opposed to how it is priced in the sharemarket.
Because a company’s share price is volatile over the short term, pure fundamental analysts do not try to predict it. They are interested only in the prospects of the business, believing that the share price will eventually reflect those prospects. So, fundamental analysis is necessarily a longer term investment strategy where results must be measured over several years.
Fundamental analysis is practiced by many of the world’s most famous investors, as you’ll see in the next section.
Further Reading
- Just search for ‘fundamental analysis' on any search engine and you'll be overwhelmed with stuff. Investopedia has some good introductory articles.
- For a comparison of technical analysis with fundamental analysis click here
