Saturday 14 April 2018

Four Pillars of Fundamental Analysis

Howdy!

Lets get into the core of fundamental analysis now:
Four pillars of analysis in bottom up fundamental analysis of a stock which I follow:
  • Quantitative Analysis (Objective) - i) Financial Analysis ii) Valuation Analysis
  • Qualitative Analysis (Subjective) - iii) Industry Analysis iv) Management Analysis
As an investor you want to invest in a handful of stocks to create wealth and to do that you need to able to filter or scan them through a series of filters. The above Objective and Subjective analysis does just that for you. Dont be surprised if you arent able to narrow down on even a single stock after taking the company through these filters! You just need to find one or two new companies every couple years to invest.

My belief is that the Financial Statement of a company in most cases reflects a lot about the company in itself. The reason I pick Financial Analysis as my first filter criteria to screen a stock is due to these reasons:-

  • A company's economic moat will reflect in its Financial Statements
  • If a company has top quality management, that too will reflect in the Financial Statements
  • In most cases the industry in which the company operates can be guessed looking at the Financial Statements!
All the four pillars are essential; I prefer to start with Financial, if you prefer to start with management Analysis you wont hurt me; neither will hurt you. 

As an investor you need to stick to what best work for you. There is no one size fits all! 

Untill next time, Chao!

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