Fundamental Analysis and Technical Analysis , What and When !!

POSTED BY manish ON March 30, 2009 COMMENTS (15)

I am starting a series of articles which will deal with “How to invest in stocks efficiently” . This post is Part 1 .

There are two important questions which you have to answer when you want to buy shares ? They are “What to buy” and “When to buy” ?

How to invest in stocks efficiently

Fundamental analysis

You may be familiar with Fundamental Analysis, Fundamental Analysis answers the question “What to buy” ? . It a study of companies Financial statements , cash books , markets study to find out the future prospects of a company. It answers the question “Will this company be a good buy for long term” ? , “Will it be more valuable than what it is now ” etc etc ”

But !! , Even though you have picked up some excellent companies for your long term investments , That’s not the end of the story . Now the biggest challenge and question you have is “When to buy it” ?

You should not just go next day and buy the share , that’s not the right approach . There can be a price area where buying is best in terms of risk/reward .

Technical analysis

Technical Analysis is the study of charts , price and volume patterns and other indicators derived from price and volume . Technical Analysis gives us hint on what can happen in future , understand that it only gives you chances, not a guarantee .

So everything should be taken with crossed fingers , Decisions taken on basis of TA only increases your risk/reward scenario .

I will give you an example :

Reliance is a very good long term Investment (do your own analysis to find out why, but it is 🙂 ) .

Investment Analysis

 

On Feb 1 2009 , Ajay and Robert want to invest Rs 1 lac in Reliance for long term . Both of them understand that Reliance is truly long term buy . Ajay invests in Reliance on Feb 1 , because share is going up and he feels its a good time to enter other . He buys the stock at Rs 1360 .

After some days Stock starts falling and reaches around Rs 1,150 . Roberts buys the stock at that time .

see the chart here

Here you can see that Robert has got the stock at 15% lower price , which means his profits will always be more than Ajay’s by that much . What did Robert do ? Robert used simple Technical Analysis concepts and entered in the stock with better prices , It does not mean it will always happen , but there are good chances for getting better price .

In the above case of Reliance , there is no significant price difference , but there can be cases ,where there can be drastic differences , and it would be really worth to use basic Technical Analysis .

Dont be scared , I will tell you some very basic things of technical Analysis in some of next post .

I will talk about

Part 2 : Support , Resistance
Part 3 : Trend Lines
Part 4 : Simple Oscillators to use for short term investments .

Watch out for second part soon .

Please share any real life example which happened with you , May be we all can try to find out what could have been done to make a better entry or exit from stock .

cheers 🙂

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15 replies on this article “Fundamental Analysis and Technical Analysis , What and When !!”

  1. Rohit Varma says:

    Hi Manish,

    Nice post. In this post , you have mentioned about other 3 parts i.e. part 2,3 and 4.
    I couldnt find other parts.

    It will be great if you can provide the link of other parts below the 1st post so that user can easily traverse between different posts.

    1. You can either check those article here https://www.jagoinvestor.com/archives

      Or just download this book which has all 4 parts into one . https://www.jagoinvestor.com/2009/06/ebook-on-basics-of-technical-analysis.html

      1. Rohit Varma says:

        Thanks Manish for prompt reply..

  2. Manish Chauhan says:

    @Anonymous

    thanks , I got it 🙂 .. You are interesting 🙂

    Manish

  3. Anonymous says:

    If I've confused, sorry pal ! Seen your pic, u r very young. I entered, quickly quit during Harshad. I've been trying to understand IT(2000), Politix(2004), sub-prime(2008) burn-outs. I stay satisfied with 8++% p.a. rather than 8% p.a.! Call me investor please.

    My point is your point. I've churned, so looks crude and coarse !!

    But,Straightforwardness is the best diplomacy! Just say to your fans, study T.A….but don't practice it. Like some ads showing stunts.

    T.A. must have given +ve signs in dec.07 and -ve in july08 to same stocks. So those who followed T.A. ceased to be investors, or then abandoned T.A. to remain invested.

    Why I took trouble ? I was impressed by the fantastic knowledge you were transpiring.

    Best wishes for the good work.

  4. Manish Chauhan says:

    @Anonymous

    Sorry for my slow and dumb comprehension skills , but I am truly saying that I am not able to understand what do you want to say and what is your point over all .. Please say in very simple language .

    I am sure you have some great knowledge about this and valuable comment ..

    waiting to hear from you .

    manish

  5. Anonymous says:

    stocks of companies at ronw>50% year after year, fell to rise and no bonuses even. only networth rises.9e.g. pharma, oil, mining)
    stocks of companies yet to profit and fell to profit , rise year after year (e.g. power sector).

    point 1 : show me the money !

    point 2 : can we have technical analysis on casinos please.

  6. Manish Chauhan says:

    @Anonymous

    Can you be more clear on what is your point , what are you actually saying

    Manish

  7. Anonymous says:

    The great TRINITY of PER, PBR and RONW cannot be beaten by their own creations. Technical analysis is a profession and as such a Pujari is not God.

  8. Manish Chauhan says:

    thanks Umesh ..

    Keep reading the articles , we have much more stuff coming 🙂

    You can for sure recommend the blog to your students . I would be more than happy .

    Nice to know that you take sessions on Stock markets . Are you a trader yourself ?

    Manish

  9. Umesh says:

    Hi,
    I appreciate the simplicity of your this article , and trying to read quite a few of your articles since yesterday (sunday) when i got to know you thru twitter, i hope I can mention about this web site to my students , ( I take sessions on GK and stock markets in a pvt institution in Delhi),
    Thanks ,
    Umesh

  10. income.portfolio says:

    MC:
    yeah you did answer my questions, albeit with a different perspective. I agree with 5+ year of time horizon, these times are a steal…..

    Best Wishes,
    TIP Guy

  11. Manish Chauhan says:

    Very true …

    But determining fair value can be little tricky and not everyone’s cup of tea … Thats my point of view .

    Prices are driven my greed and fear … so better to use that criteria to accumulate stocks .

    Like currently , we are near the fear time … Everyone is looking towards those “Guaranteed return” funds . No one is ready to take stocks , this fact in itself is a good indication of buying them … Also if you time horizon is more than 5 yrs , its probably one in a life time opportunity to get into stocks .

    I am not sure if I answered your question 🙂

    Manish

  12. income.portfolio says:

    Timing the market is distraught with dangers. Isn’t is better to come up with Fair Value (depending upon individuals objective or risk profile) ? And then wait for fair value to make an entry point?

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