Free Stock Market Course Part 31: Fundamental Analysis

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Chapters:
00:00 The Three Building Blocks
01:02 Fundamental Analysis FA
03:24 FA: Top-Down Approach
03:50 Macroeconomic Factors
06:28 Microeconomic Factors
08:16 Indexes
09:03 Two Categories
10:49 Drawbacks
13:40 Recommended Reading
Module 5 Section 4
The Three Building Blocks
1. Fundamental Analysis (This section)
2. Mental Analysis (Section 5)
3. Technical Analysis (Section 6)
1. Fundamental Analysis (FA)
FA tries to determine a stock's real or "fair market" value.
The current value is compared to the fair market value.
Inexpensive Stocks:
Stocks that have a current price that is believed to be below fair market value.
These stocks are purchased because they are considered inexpensive.
Expensive Stocks:
Stocks that have a current price that is believed to be above fair market value.
These stocks are sold because they are considered expensive.
Most guests on the financial channels are Fundamental Analysts.
FA: A Top-Down Approach
1. Macroeconomic Factors:
Outside a company
2. Microeconomic Factors
Inside a company
1. Macroeconomic Factors:
The state of the economy
Sector conditions
11 Sectors
Domestic issues (fiscal and monetary)
Geopolitical factors
Current market fixation
2. Microeconomic Factors:
A company’s:
Management,
Revenues,
Earnings,
Future growth,
Return on equity,
Profit margins,
etc.
Indexes
Typically, Fundamental Analysis is used to find stocks or any tradeable security, but it can be applied on a larger scale, such as to an index.
The Dow Jones Industrial Average (DJX)
The NASDAQ 100 (NDX)
The S&P 500 (SPX)
Two Categories
1. Quantitative Analysis which allows for actual numbers for measurements and calculations.
2. Qualitative Analysis which allows for less measurable aspects such as a company's key executives, brand-name recognition, patents, future products (R&D), and proprietary technology and methods.
Drawbacks
Forecasts, no matter how educated and/or eloquently presented, are estimates, or guesses.
Analysts publish buy, or accumulate, recommendations. These recommendations can be wrong. Additionally, there may be a reluctance to recommend selling a stock.
An analyst may not want to “bash” a company which can compromise objectivity.
Fundamental Analysis can involve any aspect of an index or stock, which leaves room for many unknowns.
Pure Fundamental Analysis, does not concern itself with other disciplines such as Technical Analysis or Mental Analysis.
The FA Bible: The Intelligent Investor