Fundamental analysis vs Technical analysis

Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. While, Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume  

Element F.A vs Element T.A

Financial Statements vs.  Charts

A we know, fundamental analyst starts with the financial statements , while a technical analyst approaches a security from the charts. By looking at the balance sheet, cash flow statement and income statement, a fundamental analyst tries to find out a company's value. On the other hand, an analyst attempts to determine a company's intrinsic value. In this approach, investment decisions are fairly easy to make - if the price of a stock trades below its intrinsic value, it's a good investment. Although this is an oversimplification (fundamental analysis goes beyond just the financial statements) for the purposes of this tutorial, this simple tenet holds true.

Investor that more on technical analysis(technician), on the other hand, believes there is no reason to analyze a company's fundamentals because these are all accounted for in the stock's price. Technicians believe that all the information they need about a stock can be found in its charts.

Duration

Fundamental analysis takes a quite long-term approach to make analyzing the market compared to technical analysis. While technical analysis used on a time frame of weeks, days or even minutes, fundamental analysis often looks at data over a number of years. The different time frames that these two approaches use is a result of the nature of the investing style to which they each adhere. It can take a long time for a company's value to be reflected in the market, so when a fundamental analyst estimates intrinsic value, a gain is not realized until the stock's market price rises to its "correct" value. This type of investing is called value investing and assumes that the short-term market is wrong, but that the price of a particular stock will correct itself over the long run. This "long run" can represent a time frame of as long as several years, in some cases.

Investing Versus Trading

Both approaches have different goals of a purchase (or sale) of a stock. In common, technical analysis is used for a trade, while fundamental analysis is used to make an investment. Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price. The border between a trade and an investment can be unclear, but it does characterize a difference between the two schools

The Comments and Critics

Some people said see technical analysis as a form of black magic. Don't be surprised to see them question the validity of the discipline to the point where they mock its supporters. In reality, technical analysis has only in recent times begun to enjoy some mainstream credibility. While most analysts on Wall Street focus on the fundamental side, just about any major brokerage now employs technical analysts as well.

The criticism of technical analysis ,specifically, the efficient market hypothesis (EMH). This theory says that the market's price is always the correct one - all past trading information is already reflected in the price of the stock and, therefore, any analysis to find undervalued securities is useless and wasted.

After all it's only the critic, whether Fundamental or Technical , it's up to investor or people who used it for their investment.

 

     

 

 

     

 

Warren Buffet's advice to the world

 

“Every new year, I adopt a couple of old maxims as my beacons to guide my future. This self-prescribed therapy has ensured that with each passing year, I grow wiser and not older.

This year, I invite you to tap into the financial wisdom of our elders along with me, and become financially wiser.

• Hard work : All hard work bring a profit, but mere talk leads only to poverty.

•  Laziness : A sleeping lobster is carried away by the water current.

•  Earnings : Never depend on a single source of income. (At least make your Investments get you second earning)

•  Spending : If you buy things you don't need, you’ll soon sell things you need.

•  Savings : Don’t save what is left after spending; Spend what is left after saving.

•  Borrowings : The borrower becomes the lender's slave.

•  Accounting : It’s no use carrying an umbrella, if your shoes are leaking.

•  Auditing : Beware of little expenses; A small leak can sink a large ship. “

•  Risk-taking : Never test the depth of the river with both feet.(Have an alternate plan ready ) 

•  Investment : Don't put all your eggs in one basket.

 I’m certain that those who have already been practicing these principles remain financially healthy. I'm equally confident that those who resolve to start practicing these principles will quickly regain their financial health. 

 Let us become wiser and lead a happy, healthy, prosperous and peaceful life."