There is a constant debate over which is better, technical or fundamental analysis. It seems like an impossible question to answer mainly because it really depends on who is the practitioner.
According to Investopedia, the definition of technical analysis is “A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.”
While fundamental analysis is “A method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect the security’s value, including macroeconomic factors (like the overall economy and industry conditions) and company-specific factors (like financial condition and management).”
The end goal of performing fundamental analysis is to produce value that an investor can compare with the security’s current price, with the aim of figuring out what sort of position to take with that security (under-priced = buy, overpriced = sell or short). So the key difference between the two is that technical analysis involves looking at the trading activity of an asset, trying to look for a pattern and exploit it. Fundamental analysis focuses more on the company’ status, its health and growth potential.
Since we are purely fundamental analysts here in Value Invest Asia, we are not in the capacity to talk about the effectiveness of technical analysis. What we do know is understanding fundamental analysis which can be both interesting and rewarding for investors. Viewing a company as a business rather than an underlying stock and analyzing it similar to how you would assess a private company makes sense to us.
Value Invest Asia
At VIA, we will bring you our analysis of companies around the region, as case studies for you to better understand our thought process on how to go about understanding the companies and the process of investing.
Stay tune for more exciting case studies in the future. Till then, happy investing.
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All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any shares in the companies mentioned above.