What is Fundamental Analysis?
Fundamental analysis is a method to identify the Intrinsic value of an Asset by evaluating various factors affect it.
The aim of Fundamental Analysis is to identify the True value of an asset compared to its Current market Price, And Finding out weather the Asset is Overpriced, Under-Priced, or Fairly Priced.
Factors Affecting It
Financial Statements:
The financial statements include Balance sheet, cash flow and income statements of a company, which helps to analyze the overall economic health of a company.
Economic Indicators:
The Economic Indicators include Inflation, Interest Rates. These factors can affect the overall market environment and the performance of individual companies.
Industry performance:
Evaluating Multiple companies related to same sector, and taking the performance of Index Funds in Consideration.
Management Structure:
Evaluating the Quality of management team the company has how efficiently the they work. How the performance of the company is getting Affected.
Other factors:
The factors such as Geopolitical Events,Conflicts, elections, and international relations, can be taken into consideration. Earnings announcements, new product Launches, partnerships, etc.
The Father of Fundamental Analysis
The father of fundamental analysis is often considered to be Benjamin Graham, along with his collaborator David Dodd. His work introduced and popularized concepts such as “intrinsic value” and the “margin of safety” — the practice of buying securities when their market price is significantly below their intrinsic value.
Graham’s methodologies encouraged investors to focus on the fundamental value of companies to determine their investment worth, rather than speculating on stock prices.
This approach laid the groundwork for what would become known as value investing, a strategy followed by many successful investors, most notably Warren Buffett.
Book recommendations
INTELLIGENT INVESTOR : One of the most important and influential books on investing, it is highly regarded for its practical advice and deep insights into the psychology of investing.
Warren Buffett, perhaps the most famous of Graham’s protégés, has called it “by far the best book on investing ever written.”
ONE-UP ON THE WALL STREET: Peter Lynch’s investment philosophy is accessible and straightforward, encouraging individual investors to leverage their everyday experiences and knowledge to find potential investment opportunities before professional analysts discover them.
SECURITY ANALYSIS: The book is comprehensive and detailed, focusing on the evaluation of stocks and bonds with the aim of providing a robust framework for conservative investments.
Common Stocks and Uncommon Profits: Philip Fisher is known for his focus on qualitative aspects of investing, particularly understanding the management of a company and its growth prospects.