Share investors can tend to fall into 2 groups – fundamental analysis and technical analysis, and here we explain what is the difference between them – our experience is that both fundamental and technical, can help for increased share-market investment success. In Part 1 we looked at how to determine financially healthy companies to invest in.
To analyse, is to measure, or to count. But to analyse well, you must measure what matters, and count what counts.
It’s quite rare for a Technical Analyst (“TA”) to delve into the “fundamentals” of stock-picking, as this is the territory of a Fundamental Analyst (“FA”).
So, what is the difference between fundamental and technical analysis? And how do they each help investors to make better share-savvy decisions?
Fundamentals assess a stock’s underlying business operation and its profit-related activities/outcomes – its financial returns. An “FA” places the business under a “financial-ratio microscope” to measure all possible issues relating to its operational profit-growth momentum and, as a consequence, its potential share-price growth.
Technicals chart a stock’s share price upward or downward momentum. A “TA” follows share prices in order to align investors with on-coming positive or negative price action – that is to prepare investors to BUY when share-price patterns and volume data are indicating potential sustained rising, and to SELL when charting is indicating a potential meaningful fall in a stock’s (or the market’s) share price/s.
In a nutshell, fundamental analysis “spots” academic reasoning for business earnings growth (business profit), and technical analysis charts and “spots” buying and/or selling (investor profit) share-price trends.
Measuring what Matters and Counting what Counts
It is only “measuring what matters” that enables investors to “count what counts”.
An investor’s ultimate count is the net-profit outcomes resulting from the timely, technicals-triggered, “when-to-buy” and “when-to-sell” trades of fundamentals -measured & identified investment-grade “what-to-buy” stocks.
SuperBenefit’s investing/trading advisor method involves combining regular stock-market philosophies of longer-term “buy & hold” investing (fundamentals) and, shorter-term “buy & sell” trading (technicals).
That will help investors construct investment-grade “quality-stock” portfolios with bullish long-term run-with-the market growth objectives, and bearish short-term retreat-to-safety cash options as time-to-time situations would warrant.
The below schematic shows a typical range of fundamental analysis financial ratios that would be applied by a “FA” to measure and assess the operational strength and profit-growth momentum of a business.
A positive fundamental analysis assessment relative to these below financial ratios would point up a:
- Financially Healthy,
- Rationally-Valued “Growth” Company
- With “Standout” Superior Management.
Want to learn the core issues of share investing?
See our slides SMSF & Shares Overview to get a quick session where you can learn to easily understand Company Financial Statements, how to find healthy companies, what Tools and Ratios to use, work on examples, and also includes how to get better investment outcomes.