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Tuesday, 21 February 2017

Fundamental Analysis and Technical Analysis

I'm more of a fundamental analysis person when it comes to stock investing.

There are many discussions about fundamental analysis (FA) and technical analysis (TA), advantages and disadvantages of one over the other, blah, blah, blah.

However as I tend to hold my stocks over a longer horizon, I feel a good analysis on the fundamentals of the company coupled with a look at the macro factors is an approach which works well for me so far.

5 of the most common factors that I use to screen my stocks are:

a) Dividend Yield
b) Net Profit
c) Gearing
d) P/E Ratio
e) P/B Ratio

In some cases I also look at the following:

a) 5 Year Dividend Growth Rate
b) Sales (TTM) vs Preceding Year
c) ROE

Nevertheless one cannot discount the importance of a good TA.

Many a times I find myself selling too early despite having a good entry price. Reading the charts will help judge a good exit price.

Another case in point. In a bull run like the one we are facing now, some stock prices are rising faster than you anticipated. Using TA can help you to do some quick trades and in the process, hopefully earn some quick bucks.

Conversely in a bear market, take advantage of a well-applied FA to grab solid counters at attractive prices for some long term holdings.

All in all, personally I feel FA is good for stock investment over a mid to long horizon and TA is useful when it comes to short term trading.

What do you think?

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