Chapter 1 – Essential Stock Market Knowledge – Fundamentals

Excerpt from Chapter 1 of the Liberated Stock Trader Book and accompanying Liberated Stock Trader Training Course

Fundamental Analysis – the real Positives and Negatives

Positives

Understanding macro economics can help in assessing future business climate.  The future business climate will dictate the direction of the stock market.

Using fundamental data provides early warnings !  On a long term view fundamentals can provide insights into the effect of Fiscal and Monetary Policy on the direction of global markets.

Being able to accurately value a business can help understand the gap between actual stock price and actual worth – Value Investing

Value Investing which is based on fundamentals alone pays well in the long term !

Fundamentals are the only way to determine the overall health of an economy and therefore how beneficial the climate is for doing business.

Understanding Industry & Sub Industry Business climates provides greater insights !

Easy access to analysts reports based on fundamental data.

Negatives

Grasping a full understanding of economic theory can be the work of a lifetime. Then you can still be wrong.

Just because you have a theory about what should happen, and it happens does not mean your theory was correct.

There are so many facets to economics even economists cannot agree on solid core theory.

To be a value investor means you need to spend a lot of time on company accounts, reports, and get close to companies.  This means the scope of company coverage is more limited.

Just because a company on paper is under-valued does not guarantee that its stock price will increase.

You could wait years for a stock price to make a significant move.  That is time wasted.

Value Investing was largely created by Benjamin Graham and detailed in his classic investment book “The Intelligent Investor”*.  Warren Buffet’s who studied the work of Graham has also an investment strategy based solidly on fundamentals.  Value investing is essentially understanding the fundamental value of a business (Assets, Liabilities, the market opportunity, the products, the cost structure, the competition) compared to the value placed on that business on Wall Street (the stock price).  The difference or the “gap” is essentially the value in Value investing.

*1 Originally released 1949, latest version recommended Collins Business; Revised edition (July 8, 2003)

Other Chapters of the book are here

Chapter 1 – Essential Stock Market Knowledge – Fundamentals

Chapter 2 – Why do Booms and Busts Occur?

Chapter 3 – Stock Market Cycles – Business & Economic Cycles – Kondratieff to Kuznets

Chapter 4 – Is the Company in great shape – P/E Ratio

Chapter 5 – How to find the best stocks

Chapter 6 – Japanese Candlesticks – Bullish Reversal Patterns

Chapter 7 – How to draw trend lines

Chapter 8 – ROC Rate of Change Indicator