Fundamental Analysis for Trading Stocks


Fundamental analysis, the study of earnings, earnings, income, assets, etc. etc It was the mainstay of stock market investing for decades and decades. Finding a diamond in the rough was what investors were looking for, is what mutual fund managers use as their primary tool today. It’s what hundreds, if not thousands, of brokerage firms, stock market investor services, and mutual fund managers do every day of their lives. The numbers flowed in, fed into the software, and then analyzed again. So much so that there is not a single fundamental analysis surprise left to be found in large-cap stocks. This is so fundamental to the success of our large cap philosophy ( that it bears repeating. There is nothing new to learn about fundamental analysis of large cap stocks. Everything is already known.

I guess we should thank the countless analysts who have spent countless hours basically parsing the numbers for us so we don’t have to. Because without them, we wouldn’t have a starting point. Does this mean that fundamental analysis has a purpose? Of course it is. Do we use it? You bet. It’s one of the first things we use. We use screens there, and we also use analyst recommendations that are largely based on fundamental analysis. We don’t buy stocks without corroborating analyst reports, and many of our screens have an analyst reports factor. So, in a sense, fundamental analysis is THE most important factor in our stock picking. Without a good fundamentals report, we look no further at the stock.

We know that stock analysts also have opinions about the direction the market is taking, as well as the sectors. We like that too. We want to be where the action is. An outstanding fundamental stock won’t move if people don’t focus on it. And there’s the catch with fundamental analysis, and that’s why fundamentalists make bad traders or don’t believe in trading. They are long-term investors, philosophically superior to technicians in their way of thinking. But stocks only move if they are the focus of traders’ minds. (Traders for our purposes could also be mid-term speculators, which frankly is probably where we belong.) So reading an analyst’s report, or with large caps, you get a set of analyst reports. analysts, gives you an idea whether or not the stock will move in the near future (3 to 6 months). A stock that is rated “hold” is likely to do little more than follow the market or sector. A stock that is priced as a sell has probably already fallen. But a stock rated buy deserves a technical look.

Do we analyze growth rates, % of debt, stuff like that? No, it’s already done. Our job is to find the trending sectors and the trending large-cap stocks in that sector. And then take them and see if they’re ready to move.

The long-term movements of an individual stock or the market as a whole are a process of reflection. But every movement and fuss along the way is a process of emotion. A stock about to rise, based on solid fundamental analysis, must also have emotion behind it, to actually rise in our time frame. We’re not interested in holding a stock with a 15% growth rate for a year to see if that translates to a 15% increase in the stock price. The fact is, the stock is going to rise and/or fall 15% in a year, no matter what. But if we know he received high marks for his fundamentals, and then we look at his charts and see that technically he’s also very healthy, we have something.

A stock that is not performing well in analyst reports is not even worth our chart review. There are so many options in large cap stocks that we want ALL the advantages we can get. We want every selection to be a winner. When your average trade only earns you 4%, you can’t afford to go wrong.

Source by CT Larsen

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