Written by Ungku Aqeel (@ungkuaqeel418)
Fundamental analysis is the cornerstone of investing. In fact, some would say that you aren't really investing if you aren't performing fundamental analysis. It’s no surprise many people find fundamental analysis daunting. After all, the subject of finance is infamous for its use of jargons. Unlike technical analysis that focuses on the price movement of a security and uses this data to predict future price movements, fundamental analysis instead looks at wholistic economic and financial factors that influence a business.
1. Fundamental analysis naturally helps you understand businesses better
One of the most notable but less obvious rewards of fundamental analysis is the development of solid understanding of the business and industry due to the in-depth, extensive research and analysis required to conduct fundamental analysis.
Before you even look into any financial statements, you need to know what the company is about. This means that you need to know how the company makes money. For example, British American Tobacco’’s revenue stream comes from the amount of products they sell while IHH Healthcare’s revenue stream comes from the number of sick people that are admitted into their hospitals.
Not every business functions the same way. The aforementioned companies are like mangos and durians, both are great fruits (companies) but you can only get them at different times of the year. Making fundamental analysis regularly will go a long way as it help you you familiarise yourself with the different factors or events affecting business operations. The quickest, simplest and most effective way to get started is to read up on research reports on companies released by banks and other research houses. These reports are usually written whenever there is a major event that could affect an entire sector, or whenever a company’s quarterly result is out. Research reports are exclusive to its clients, but these reports can be found all over the internet. One place is on stockbit itself. Follow @BursaBuzz. They post many research reports from various banks and brokers.
A prior understanding about how different businesses or industry works from fundamental analysis of your investment in the stock market will bode well in your overall perspective upon your next business venture!
2. It helps with your “lingo”
Unless the movie Crazy Rich Asians is the story of your life, starting your own business (especially a startup) might mean pitching your business ideas to investors (Venture Capitalists or Private Equity or Angel investors) and future stakeholders. Having a business lingo goes a long way. You can have an idea that could change the world, but ultimately, investors are risking their money with an expectation to generate returns; while future stakeholders are interested on why they would choose you to be their business partner / customer / supplier, etc.
Too shy or afraid to talk to people that are fluent in this “business / financial / investment” lingo in real life because you don't have any prior experience? You can always always practice this on Stockbit by asking other Stockbitors questions and analyse the way they reply you. You might actually learn a thing or two just by reading their conversations!
Knowing how to “talk” and “present” your ideas are always crucial in everyday entrepreneur life. Being good in fundamental analysis and being able to share or debate your investment thoughts and ideas will expose you to real world scenarios, especially on important negotiations.
3. It will help you faster and apt business decisions
Over time, you’re bound to witness a black swan event, be it Pakatan Harapan’s recent victory or the oil crisis in 2015, these events will affect businesses, and fingers crossed, your business too. How would you react to these scenarios? Well, if you have been in the investment world for a while, then you would have witnessed certain events and consequently, witnessed how different corporations and managements reacts to these events.
Marvel has long been the comic-book world’s biggest player. In the mid-1990s the comics market crashed. Consequently, Marvel went broke, and there was no superhero that could save Marvel from bankruptcy. After a series of restructuring, Marvel changed the way its heroes came to life, focusing on movies rather than paper and ink. Today, Iron Man, the Avengers, Spider-Man, and X-Men are all billion-dollar franchises, and the company’s master plan–to connect many of its characters in a single cinematic universe–has turned it into one of pop culture’s most powerful brands.
Being an investor and a shareholder, especially a fundamental long term one, every decision the management and the company makes affects you. And it’s your duty to keep yourself up to date and see how they overcome adversity throughout your holding period. At times, you will know which and what type of CEO and leaders and management team you want to stick around with, and which you will chuck out. Over time, you might just pick up a thing or two that will help you when you face your own business challenges.
Ask any seasoned investor. They’ll tell you that you will make losses from time to time. Sometimes it’s the market, other times it could be an inaccurate decision. You can sell at a loss if you’re not confident in the stock anymore, but if you are convicted with your decision, you can choose to ride out the market wave. It’s a painful journey, but you’ll come out stronger and more importantly, wiser.
Good things takes time. Likewise, when starting your own business, there are seasons where sky seems to be the limit and there are bad seasons where failure seems to look like the only door left to be opened. Be confident with your analysis just like how you need to be confident in your business. If you’re not, then why jump into it in the first place?