Hello readers!
Have you ever thought about how investors choose stocks or cryptocurrencies to invest in? In order to make informed decisions, it is necessary to have some criteria as a reference to compare the available stocks and, thus, select the best ones to trade. One of the ways to do this is through fundamental analysis.
But first, as those who follow us know, we are fans and followers of technical analysis , so let's remember some essential points:
What is Technical Asset Analysis? Technical analysis is an asset (stock, commodity, crypto) analysis approach that focuses on studying price action, volume, and charts to predict future price trends.
Rather than focusing on the company's financial and economic information like fundamental analysis, technical analysis focuses on historical trends and market behavior to predict future price movements.
Furthermore, technical analysis is based on the theory that the trend is your friend, which means that an asset tends to continue its current trend until there are clear signs of a change in trend.
Now, let's go to fundamental analysis
Many people find fundamental analysis too complex. In fact, it is quite comprehensive and complete - and if done judiciously, it can be a powerful decision-making tool.
So what is fundamental analysis?
Fundamental analysis is the study of a company's financial situation and prospects, with the aim of evaluating different investment alternatives. The idea is to understand the business and the expectations for its results in the medium and long term.
Basically, a fundamentalist analyst tries to identify the company's profit growth potential in the future, as this is what makes its shares appreciate in the market.
To come to the conclusion that a particular company's stock is a good investment, a fundamental analyst typically considers three different aspects:
Financial analysis:
- Look at the company's financial data, such as the balance sheet and income statement, to assess its financial health.
Sector analysis:
- Understand the company's position in relation to the industry in which it operates, including competition and market trends.
Macroeconomic Analysis:
- Analyze external factors that may affect the company, such as economic policy, inflation and interest rates. It is possible that, at the current time, the quotations of a stock are not reflecting the true value of the company. The objective of fundamentalist analysis is precisely to anticipate the future behavior of the shares in the market - whether up or down, around the real value.
Typically, investors interested in fundamental analysis are those who are focused on the long term, buying shares with the aim of becoming partners in the company and profiting from it over the years.
I leave here a website where you can find a lot of information about fundamental analysis of several companies here
Here are some tips and fun facts about fundamental analysis:
Fundamental Analysis vs Technical Analysis:
pros and cons
Fundamental Analysis:
- Advantages: Fundamental analysis allows the investor to evaluate the financial health of the company and its ability to generate profit in the future, helping to predict the future performance of the shares. Additionally, this approach can help identify underappreciated investment opportunities.
- Disadvantages: Fundamental analysis can be time consuming as it requires careful evaluation of the company's financial and economic data.
Technical analysis:
- Advantages: Technical analysis allows the investor to evaluate the stock price trend based on charts and technical indicators, helping to identify market entry and exit points. Also, this approach is faster and easier to use compared to fundamental analysis.
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Disadvantages: Technical analysis can be influenced by subjective factors such as market expectations and investor psychology, which can affect the accuracy of signals. Furthermore, this approach does not provide information about the financial health of the company.
Fundamental analysis and cryptocurrencies.
After this little talk about fundamental analysis, I hope that the curiosity bug has settled in IT ! Knowledge is never too much, and don't forget, don't just rely on a financial indicator. It is important to look at all aspects of the company before making an investment decision. Be aware of market trends and the industry in which the company operates. A company may be financially healthy, but if it is in a declining industry, its stock may not be a good long-term investment. Fundamental analysis can help identify companies with growth potential, but remember that investing always involves risk. It is important to be aware of these risks and make informed decisions. I hope this post was useful to understand a little more about fundamental analysis and how it can be useful in making investment decisions. To the next!