Fundamental Analysis: Why do novice stock market investors often lose all their money? Have they no intelligence? Are they unable to overcome losses because they do not have enough resources? There is a lack of solid basic research that is based on a gambling attitude, which is the simple answer. I repeat: it is true! People didn’t research enough, leading to most of these investments losing money.
These investors relied on news reports or personal advice while making their decisions. In a state of complete terror, some people booked their losses in response to the daily price changes. Their emotions transformed their long-term investments into a game of chance. In light of this, and this trend will likely persist, very few retail investors and those who have taken stock market courses have become filthy rich.
The technique to do proper research -Fundamental Analysis
The amount of research conducted is the quality that differentiates very successful investors from the rest of the investment community. Before engaging in long-term investing, only a select few individuals conduct fundamental analysis research. Determining a stock’s health by analyzing its financial sheets and moats is fundamental analysis. The viability of the company over the long term can be established with its assistance.
Let’s witness some stories:
The Financial Statements, including the Profit and Loss Statement, Balance Sheet, and Cash Flow Statements, are read in great detail with full attention to detail. In the subsequent step, individuals are required to check the profitability of the business model, as well as its competitive power in comparison to other businesses and their devotion to the brand. Last, a review of the company’s products and the revenue model for the company’s long-term viability has been completed. These components make up what we refer to as fundamental analysis.
Fundamental value investors include some of the most successful investors in the world, including Mr. Warren Buffett, Rakesh Jhunjhunwala, Ramdeo Aggarwal, Ray Dalio, and Peter Lynch, among people. They undertake a thorough analysis of the company and remain steadfast through every up and down till the fundamentals of the company alter. The research makes it possible for an investor to earn in such a way that the everyday volatility of the market does not impact him. He will concentrate more on the company itself, including its expansion, earnings, profits, revenues, and margins, rather than the price of the shares. This allows them to avoid making hasty decisions based on their emotions. Classes on the stock market teach the same approach to help their pupils build the appropriate mindset for trading and investment opportunities.
We understand that the regular FA study may seem tedious to you, but believe us when we say this is exactly how it should be. Mr. Buffet owns a total of 400 million shares of Coca-Cola. Before investing in Coca-Cola in 1987, he reviewed the company’s annual reports and statements published from the start. He has generated a return of more than 1,550% alone from his investments in Coca-Cola businesses.
He has amassed a fortune by reaping the benefits of capital appreciation through dividends, splits, and bonuses. Returns improved with the company’s growth, resulting in a constant dividend increase. There are numerous examples of people who believed in a firm’s fundamentals and became major investors, much like Mr. Buffett and Coca-Cola. These individuals have found success in the business world. Mr. Rakesh Jhunjhunwala’s love for Titan is another great example of a story that belongs on this list of classics.
How is a good fundamental analysis done?
Researching a company’s sector performance before investing in it is wise. The next stage is examining the promoter’s stake in the company for indications of manipulation. Before putting money into a company, understand its long-term goals. Things like, “How is the company’s management doing?” Is there a case in court? Considering what has to be considered. This should motivate you to thoroughly review the company’s assets and liabilities as detailed in the yearly reports. The next thing to do is look at all the crucial financial measures, such as PE, ROE, Debt to Equity, and RoCE.
The lesson you took away from Mr. Buffet’s narrative is thoroughly examining the company’s PNL statement and balance sheets. This section probably contains any existing defaults or issues. We should see positive trends in both the macro and micro indicators. Only one should invest their hard-earned money after this arduous process, believing in the company’s success. In this manner, in-depth instruction on fundamental analysis is given in stock market courses.
The magic of fundamental analysis lies in compounding
Making money investing takes time, faith, and patience, not a quick buck. When a corporation is strong, it can maximize profits for its shareholders. Excellent companies whose long-term investors have gained fortunes include Infosys, TCS, HUL, Nestle, etc. You won’t fall for investing in manipulated or penny stocks using these. We believe the solid ones are robust enough to endure the test of time and maintain their position as industry leaders indefinitely. A savvy investor will purchase the stock at a discount through his investing strategy and then sell it when its value rises, or he achieves his objective. If you think this is all just a theory, that’s fine. Alright, let’s look at a real-world example!
Tata Consultancy Services (TCS) fell 63% during the 50% market correction 2008. Was Tfundamentally flawed in any way? Sick balance or no room for expansion? Incompetent leadership? Nothing about any of them! A strong buy signal went off at this point for most investment techniques. Including all dividends, splits, and bonuses, astute investors who had previously invested their money into TCS are now sitting on a 2,766% return. Here is a good example of the real-world benefits of investing in top-notch businesses.
Becoming good at fundamental analysis takes a lot of time and effort. The big-name investors didn’t all suddenly become experts. A smart investor will never stop learning and growing. While he studies, he may make some blunders, but that’s okay. However, he will also learn from his mistakes and fix them. Our philosophy at GSF, where we provide stock market classes, is that he will become a successful investor soon.
