I being a strong believer of Technical Analysis (of stock market) many times tried prove to my point of view to professors (like Ramesh Sir and Prashant sir) and my friends like (Mr. Nifty Mehra) over fundamental analysis. Of course they may be right in own their way, but I believe Fundamental analysis is not everybody’s cup of tea and is a very lengthy process. The main thing is it’s for long term investor, and not for short term investor or traders. Where as Technical analysis is comparatively easy, can be customized depending upon the analyzer comfort level. So both have got their own advantages and disadvantages. Here are the some points about this argument………
Fundamental Analysis
Ø There are an infinite number of factors that can affect the earnings of a company, and its stock price, over time. These can include economic, political and social factors, in addition to the company statistics.
Ø The data used can be out of date.
Ø It is difficult to give appropriate weightings to the different factors.
Ø It assumes that news travels instantly - but will everyone act on it instantly?
Ø Even when fundamental analysis reveals an undervalued company, or a stock with high growth prospects, it does not tell us anything about the timing of the purchase of the stock. In other words, we may have discovered a grossly undervalued stock whose price has been falling for some time, and may well continue falling!
Ø Estimates of the future growth of company earning, and profits, play a key part in fundamental analysis. Unfortunately, growth estimates can be correct, but could have already been factored into the price of the stock. There is a reason for the
Ø Benjamin Graham is widely regarded as the father of fundamental analysis. Shortly before his death in 1976 he stated that fundamental analysis could no longer be counted on to produce superior investment returns:
| I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities· This was a rewarding activity, say, 40 years ago· but the situation has changed· |
Where as Technical analysis uses price, volume, market sentiment and cycles to predict future price movements. Technical analysis assumes that the price and volume charts reflect all known information that could affect the price of a company.
Bottom line
Use the fundamental analysis to find out “value stocks” but buy & sell them when technical signal gives the right signals.
1 comment:
My dear Naveen
I would like to post a reply on what you side, well do you think an technical analysis of any company is possible without doing a fundamental analysis of what the company is all upto?
Moreover do not say that short term gains cannot be made by fundamental analysis. People even make short term gains with help of fundamental analysis..
Post a Comment