Understanding Fundamental vs. Technical Analysis

EquityRT Analyst
| Nov 7, 2019

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Fundamental analysis is the approach of analysing a type of security by examining related economic and financial factors and measuring its intrinsic value.

Fundamental analysis is accepted as the cornerstone of investing and is about spending time going through anything that can affect the security’s value. Intangible aspects like quality of management and market share also have a great importance in analysis. A company’s fundamentals are basically divided into two main aspects; the quantitative fundamentals and the qualitative fundamentals.

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Qualitative Fundamentals

Competitive advantage, management, corporate governance and the business model are the key fundamentals to consider. And it’s also important to consider how the company’s industry works.

  • Competitive advantage is the catalyst that drives the long-term success of a company.
  • Management is one of the most important criteria to consider because a good team can make a big difference and if the leaders fail to execute a plan, it is not possible to be successful even with the best business model.
  • Corporate Governance represents the policies denoting the relationships between stakeholders, management and directors and their responsibilities.
  • Business model basically represents how the company generates value for its customers.

What’s the Difference Between Fundamental and Technical Analysis?

Both fundamental analysis and technical analysis are used to research and forecast stock prices in the future, but they are at opposite ends of the spectrum.

Technical analysis uses stock charts to identify patterns and trends and the stock’s price and volume are the only inputs. Fundamental analysis, on the other hand, attempts to measure a security’s intrinsic value by examining related economic and financial factors including the balance sheet, strategic initiatives, microeconomic indicators, and consumer behavior.

What Is Intrinsic Value?

Intrinsic value refers to perceived or calculated value a company, an investment or an asset. Analysts use this value to categorize a security as overvalued or undervalued by comparing the intrinsic value with current market price of the security.

Source: EquityRT MacroAnalytics

Disclaimer: The information in the publication is not an investment recommendation and it is not an investment or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but EquityRT does not represent that it is accurate or complete. EquityRT does not accept any liability for any direct, indirect, or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author, as of the date of the publication and are subject to change without notice.

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