Why Fundamental Analysis is the Way to Go

Going to share my thoughts on why I prefer fundamental analysis to its direct opposite, technical analysis in this blog post.

(Image source: http://www.investingstarter.com/technical-analysis-stock-investment/)

Technical analysis is basically looking at the previous prices of shares to determine its future price. Terms such as support level, moving averages come to my mind as I write on this. I personally do not really like to use technical analysis methods, human behavior is almost always unpredictable and what happens tomorrow, nobody knows. I also don't really understand all the different ways of analyzing such as looking at the support levels, where resistance is, etc. Still sketchy on this whole thing and quite skeptical, what if the stock doesn't perform as expected, you could be stuck in a situation like the penny stock crash in 2013, with falling stock prices and the value of the stock is a fraction of what you paid for it. (Maybe someone can fill in the details or correct any misunderstandings here:))

The opposite of technical analysis is fundamental analysis, which I think is the better of the two ways to decide on which stock is worthwhile investing in. Fundamental analysis focuses on the financial statements of the companies that we are interested in and only takes the price into consideration when we compare it to the value which we have come up with. This is usually used with value investing (more of which can be found at Value Investing), which involves investing in companies which you think has an intrinsic value (found through fundamental analysis) higher than the price you're paying for the company. This ensures that the company is able to support the price that you are paying for it, be it in earnings, potential or hard assets.

This sounds quite intuitive but sometimes, share prices are just going up higher and higher due to the increasing share price attracting speculators who think that they can buy the shares and sell it to the next person for an even higher price, though it may not necessarily justify that price (The Bigger Fool Theory, believing that there is a bigger fool than you are that would pay the higher price)

While I believe in fundamental analysis, I guess a bit of technical analysis would be good in determining if the share is likely to fall within a short period of time and whether I can get it cheaper (maybe save a few bucks). Like in an instance where the price of the share is on a downward trend, I may re-consider buying for the time being and wait for a better opportunity. Though some opportunities may be missed this way after the share suddenly shoots up, but I like to believe there are many undervalued shares around that I can pick and choose from, just need to spend more time to find another one.

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