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Fundamental analysis

Fundamental analysis

Fundamental Analysis Demands, Insists, On Solid Information About A Company. It Requires Subjecting A Company’s Performance And Its Financial Statements To The Most Piercing Scrutiny As Well As The Analysis Of The Economy And The Industry In Which The Company Operates. The Fundamentalist Then Makes His Buy Or Sell Decision On The Basis Of His Interpretation Of The Information That He Receives, His Analysis, And On The Strength Of His Experience And Investment Maturity.

All Information Is Important And Can Be Grouped Under The Following Classifications:

  1. Information about the economy.
  2. Information about government policy; taxation, levies, duties and others.
  3. Information about the industry in which the company operates.
  4. Information about the company — its management, its performance, its sales and its products including its performance in relation to other similar companies.
  5. Information about consumer outlook, fashions and spending.

In India, We Are Fortunate That There Is Greater Awareness Of The Need For Information Today Than Ever Before And This Need Is Being Addressed By The Media, Researchers And Professional Investment Consultants.

Internet

The Internet Is A Tremendous Source Of Information. It Can Tell You About The Economy, Company Results, Profiles And A Host Of Other Information. Now Can Even Buy And Sell Shares Instantly On The Net.

Media

There Are Several Investment And Business Focused Magazines, Newspapers And Directories Available Today That Discuss The Economy, Industries And Individual Companies. These Contain Articles Of A High Standard That Analyze Industries And Companies In Depth. They Also Contain Knowledgeable Articles On Tax, Investment Strategies, Finance And Allied Subjects.

I Would Insist That The Serious Investor Should Read At Least One Good Financial Paper Every Day And Two Magazines A Month. This Ought To Keep Him Well Informed.

Investment Newsletters

There Are Several Professional Investment Managers And Experts Who Publish Investment Information. This Is Extremely Useful As They Are Often Very Up-To-Date And Contain Information Not Generally Available To The Investor. 

 Insiders

Insiders Are Persons Who Work For A Company Or Who Have Intimate Dealings With A Company And Have Access To, Or Are Aware Of, Information That Is Not Generally Known. This Could Be Information On The Performance Of The Company, Upcoming Rights Or Bonus Issues, Or Some Other Relevant News. As The Information Is Not Known To All, The Investor Must Act Fast If He Wishes To Make A Killing. The Securities Exchange Board Of India (SEBI) Has Published Regulations Prohibiting Insider Trading. I Would Also Caution Against Insider Trading; Apart From The Fact That It Is Against SEBI Rules And The Law, It Is Fraught With Other Risks. Edwin Leferre, In His Book, Reminiscences Of A Stockbroker Also Warned Against It Saying, “Wall Street Professionals Know That Acting On Inside Tips Will Break A Man More Quickly Than Famine, Pestilence, Crop Failure, Political Readjustments Or What May Be Called Normal Accidents.”

Seminars And Lectures By Investment Experts

Excellent Seminars And Lectures Are Being Held In The Country. These Are Conducted By Eminent Individuals And One Can Pick Up A Lot Of Information By Attending These Lectures. These May Be On How An Industry Is Doing, Their View Of An Industry, And The Like. One Can Even Share Thoughts With Those They Meet. This Can Result In Forming Opinions. Acting On These Opinions Could Be Profitable.

Stockbrokers

Stockbrokers Are Always In Touch With Companies And Are Normally Aware Of Their Performance And Other Factors Affecting The Price Of A Share. However, It Should Be Remembered That:

Stockbrokers Usually View Companies From A Short Term Point Of View.

A Lot Of Information That A Broker Gives Is Based On Rumours And Tips — Many Of Which May Be Untrue And Unsubstantiated.

Stockbrokers Sometimes Describe Companies Glowingly Based On Hearsay; This Could Be Misleading.

Brokers May Also Give You Information To Make You Buy The Shares They Want To Offload.

These Are The Major Sources Of Information. You Must Train Yourself To Listen And Absorb Information That You Receive. You Should Analyze And Interpret The Information To Determine The Profitable Course Of Action To Be Taken. This Is The Essential Governing Principle Of Fundamental Analysis — Action Only After Receiving And Analyzing Information.

It Is Also Extremely Important That One Acts Swiftly On The Information Received As The Person Who Receives It First Will Often Be The Person To Profit Most From It.That Is What Rothschild Did.

18 June 1815, Was A Date That Will Be Remembered As The Day When One Of The Most Decisive Battles In Europe Was Fought — The Day The Duke Of Wellington Pitted His 75,000 English Troops Against The 100,000 Soldiers Of Napoleon. The Battle Was Momentous As The Future Of Europe And The European Colonies Around The World Rested On Its Outcome.

Investors In London Were Concerned And Worried. As The German Army Under Marshal Von Blucher Had Not Joined Its English Ally At The Time The Battle Began, There Was Concern That England Would Lose The Battle. The British East India Company’s Trade With India And China Was Threatened. There Was Fear That Its Allies Might Desert England. The Future Of The English Empire Was At Stake.

Investors Awaited News. Nathan Rothschild Of The House Of Rothschild, A Leading Merchant Banker, Aware Of The Importance Of Information, Had Invested A Considerable Sum To Develop A Private Intelligence System. This Was Well Known. It Was Also Well Known That Rothschild Had Invested Heavily On An English Victory. As Soon As The War Was Over, Rothschild’s Agents Dispatched To Him Carrier Pigeons With The Result Of The War In Code. When They Arrived, Well Before The Official Dispatches, Rothschild Began To Sell Every Thing He Owned. In The Belief That The English Had Lost, Investors Panicked And Began To Sell. The Market Collapsed. In The Depressed Market, Rothschild Stepped In And, Along With His Agents Bought And Bought. Within Hours, The News Of Wellington’s Victory Sent The Market Booming. By This Man-Oeuvre, Rothschild Earned One Million Pounds, A Fabulous Amount At That Time And It Is This That Led Him To State, “The Best Time To Buy Is When Blood Is Running In The Streets”.

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