What is fundamental analysis? How is it done?
Fundamental analysis is a method that examines economic, political, social and other factors to determine the true value of an investment vehicle. Fundamental traders try to find instruments that are above or below the market price. So they can buy when it's cheap and sell it when it's expensive.
To perform fundamental analysis, you can follow these steps:
1. Select the industry or market you want to invest in. For example, stocks, currencies, commodities.
2. Follow macroeconomic data related to the sector or market. For example, growth, inflation, interest rates, unemployment, political developments.
3. Analyze investment vehicles within the sector or market. For example, companies' financial reports, revenues, profitability, debt ratios, competitiveness, future plans.
4. Calculate the true value of investment instruments. You can use various methods for this. For example, discounted cash flow, price/earnings ratio, dividend yield.
5. Determine the difference between the real value of the investment instruments and the market price. If the market price is below its true value, it may be a buying opportunity, and if it is above it, it may be a sell opportunity.
Here are the points to consider when doing fundamental analysis:
- Fundamental analysis is a long-term investment strategy. You should not be affected by short-term price fluctuations.
- Fundamental analysis is a process that needs to be constantly updated. Factors affecting the value of investment instruments may vary.
- Fundamental analysis alone is not enough. You should also use other methods such as technical analysis and emotional analysis.