Introduction

Fundamental analysis is considered by some individual investors to be of value only to long term investors. There is no doubt that the stock market research conducted by long-term investors focuses on determining the value of a stock by studying the financial records of a company. Traders are focused on short term investments and they typically move right to the price charts and technical analysis when it comes to making investment decisions. This webpage is going to uncover some little known insights that may cause you to think differently.

Your Advantage

Professionals that do fundamental analysis have over 700 factors they can consider when conducting their stock market research. The individual investor does not have the time or desire to conduct this extensive research. One of the advantages the individual investor has is their ability to make quick decisions in responding to market action. However, that shouldn’t eliminate consideration of the fundamentals. There are some things that the individual investor can do to simplify this process. I’ll get to that later.

Wny Do Fundamental Analysis?

For now, consider the reasons why an analysis of the fundamentals should be a factor in a broader range of investment decisions for investors in a broader range of trading styles. Consider the following facts:

1. Institutional Investors control market price action: When stock market prices are rising, institutional investors are buying. When market prices are falling, institutional investors are selling. Individual investors have very little impact on the market.
2. Institutional Investors make their investing decisions based on fundamental analysis: Institutions do a rigorous analysis on each investment before buying or selling a stock. What is the number one factor that the institutional investors consider before buying? Fundamental analysis
3. When institutional Investors start to buy a stock, or sell a stock, there is often a surge in that stock’s volume.
4. Institutional Investors buy stocks that have high liquidity. That generally means stocks that have average trading volumes in excess of 500,000 shares per day.
5. Stocks with high liquidity usually generally have higher stock prices in excess of $20/share.

How Trading Styles Impact Fundamental Analysis

Day Traders answer the question what to buy based on stock price action during that particular trading day. They buy during that day and they sell during that day. This is one case where ignoring fundamentals may be an appropriate practice. During the day, things are happening so quickly, the day trader doesn’t have time to research the fundamentals.

Intermediate and long term investors answer the question what to buy based on fundamental analysis. That makes sense. They’re more concerned about the value of the stock now and what it likely will be in the future. They’re less concerned about short term price action.

Short term traders (e.g. Swing Traders and Position Traders) are caught in the middle. Short term traders generally hold their stocks for a minimum of 3 days and a maximum of 3 months. It is my opinion that short-term traders would achieve better results by incorporating some amount of fundamental analysis in their selection of stocks to watch. It would be very impractical for a short-term trader to do the same amount of analysis as an institutional investor. Furthermore, the individual investor does not have ready access to all of the stock market research data available to the institutions. So, how much analysis is enough?

Tutorials

The tutorials in this section provide detailed training on a basic set of fundamentals that will uncover stocks worthy of being added to a watchlist of stocks to buy when the time is right. This analysis can be conducted within a period of 30 minutes. Candidates for the individual investor’s watchlist that came exclusively from technical analysis, should also undergo this abbreviated analysis of their fundamentals before these stocks are considered for purchase.