Fundamental analysis is the secret that many look for in the actions of investors who profit from the stock market. How do they know which stocks will pay off the most in the long run? How do you plan your purchases? The answer is simpler than you might think and it’s called fundamental analysis.
But is it really that easy to perform a fundamental analysis? If you want to discover this and other answers about fundamental analysis, the secret of financial investors in the stock market, your place is here!
What this article covers:
What is fundamental analysis?
When a company puts its shares up for sale on the stock market, it is up to potential shareholders to buy them. It is called fundamental analysis the analysis that these shareholders make to reach the conclusion of which share to buy from which or that company.
That is, let’s say that a company X put its share on the stock exchange. A shareholder will carry out a fundamental analysis of that company to find out whether or not it is worth buying its shares and profiting from it.
It is a fairly simple design effort, but the work itself is quite difficult and requires a lot of knowledge on the part of the investor who must observe with a close eye various aspects of the market to carry out his fundamental analysis.
What are the aspects of fundamental analysis?
Like all types of techniques, fundamentalist analysis respects some aspects that must be taken into account at the time of analysis. Something that the analyst should always take into account is the environment in which the company operates, the current situation in the country and how business is doing in general. This aspect of fundamental analysis is called “macro economics”.
There are many other factors to look at in a company with fundamental analysis. For example, if it exports its products or imports raw materials, what is the status of these two topics today and what are their possible projections.
Does the raw material will increase and impact the future of the company? Or will there be new import taxes that end up hampering future growth? These are just a few examples of the aspects that must be taken into account when carrying out a fundamentalist analysis.
Quite complicated, isn’t it? And it really is a very difficult effort that is only done by the most experienced professionals in the business.
What is fundamental analysis used for?
But all that effort put in at the time of fundamental analysis is there for a good reason. The risk when buying shares of a company that may devalue the next day is real in the stock market, and therefore there is little care.
If a certain investor buys a share that devalues the next day, he will literally have thrown his money away without the possibility of selling those shares for a price greater than or equal to the one he bought and without being able to receive dividends from the company that did not profit.
What is the difference between fundamental and technical analysis?
And as there is all this responsibility on the part of financial investors, fundamental analysis may not be enough to determine which company may or may not receive this vote of confidence from investors.
Another type of analysis used in conjunction with fundamental analysis is called technical analysis. This second is characterized by a more practical look at a given company.
How has she behaved in the past? Has her stock gone down or up in value before? These are some of the questions investigated in technical analysis. We can summarize technical analysis as an attempt to look into the company’s past to predict its future.
What are the advantages of fundamental analysis?
With that, we already know, at least in a more basic way, fundamental analysis and what its objectives are. The great advantage of this technique is to sift out the companies that seem most profitable from those that are likely to be a problem for those who bought their shares.
Now that you already know a little about the secret of making money from the financial market, how about trying to learn how to perform fundamental analysis and thus gain some gain in the market?