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Sunday, 18 October 2020

How to start investing in stock's: Investing Basics for Beginners Guide 2020

October 18, 2020
How to start investing in stock's: Investing Basics for Beginners Guide 2020
Investing is a way to keep money busy with life and that money works for you so that you can fully reap the rewards of your labor in the future. Investment is a means to a happy ending. Veteran investor Warren Buffett has defined investment as "... the process of withdrawing money" to get more money in the future. The investment aims to make your money work in hopes of one or more types of investment vehicles. Your money is increasing over time.
Investing In Stocks
Let's say you have $ 1,000 set aside, and you are ready to enter the world of investment. Or maybe you only have $ 10 extra a week, and you want to invest. In this article, we will walk you through how to get started as an investor and show you how to maximize your returns while minimizing your costs.

key takeaways:

(i) Investment is defined as money or capital for an effort, with the expectation of gaining additional income or profit. 

(ii) Unlike consumption, investing earmark money for the future, it expects it to grow over time. 

(iii) However, investment also comes with a risk of loss. 

(iv) Investing in the stock market is the most common way for beginners to gain investment experience.

What Kind of Investor Are You? 

Before you make your money, you have to answer the question of what kind of investor am I? When opening a brokerage account, online brokers like Charles Schwab or Fidelity will ask you about your investment goals and how much risk you want to take.

Some investors want to take an active hand to manage the growth of their money, and some like to "set it and forget it." More "traditional" online brokers, like the two mentioned above, allow you to invest in stocks, bonds, exchange-traded funds (ETFs), index funds, and mutual funds. 

Online broker 

Brokers are either full-service or exempt. Full-service brokers, as the name suggests, offer a full range of traditional brokerage services, including everything related to retirement, financial advice for health care, and money. They typically only deal with high-net-worth customers, and they may charge a substantial fee, including a percentage of your fees, a percentage of the property you manage, and sometimes an annual membership fee. It is common to see a minimum account size of $ 25,000 and in full-service brokerages. Nevertheless, traditional brokers justify their high fees by advising on your needs. 

Discount brokers used to be the exception to this, but now they are the norm. Discount online brokers give you the tools to select and place your transactions, and many of them also offer a set-it-and-forget-it-Robo-advisory service. As the financial services space has moved into the 21st century, online brokers have added more features including educational content to their sites and mobile applications. 

Also, although there are many discount brokers with very few (or very few) minimum deposit restrictions, you may face other restrictions, and some accounts do not charge a minimum deposit fee. This is something that an investor should keep in mind if they want to invest in stocks. 


Following the 2008 financial crisis, a new breed of investment advisor was born: Robo-advisor. John Stein and Eli Browerman of Betterment are often credited as the first in space. Their mission was to use technology to lower costs and streamline investment advice for investors. 

Ever since Betterment has been introduced, other Robo-first companies have been established, and even online brokers such as Charles Schwab have added advisory services such as Robo. According to a report by Charles Schwab, 58% of Americans say they will use some sort of Robo-advice by 2025.3. If you want an algorithm to make investment decisions for you, including tax-loss harvesting and rebalancing, then a Robo-Advisor for you. And as the success of index investing has shown, if your goal is long-term wealth creation, you can do better with a Robo-advisor. 

Investing through your employer 

If you are on a tight budget, try to invest just 1% of your salary in a retirement plan available at work. The truth is, you probably won't even leave a contribution. 

Work-based retirement plans deduct your contribution from your pay before taxes are calculated, which will make the contribution even less painful. Once you are comfortable with the 1% contribution, perhaps you can increase it as soon as you raise the annual. You will not miss the possibility of additional contributions. If you have a 401 (k) retirement account at work, you can already allocate mutual funds and even your own stock in your future. 

Minimum to open an account 

Many financial institutions have minimum deposit requirements. In other words, they will not accept your account application unless you deposit a certain amount. Some firms will not allow you to open an account with an amount as high as $ 1,000.

It pays to check our broker reviews before shopping around something and deciding where you want to open an account. We list the minimum deposit at the top of each review. Some firms do not require a minimum deposit amount. If you balance above a certain threshold, other costs such as trading costs and account management fees can often be reduced. Still, others may offer a certain number of commission-free trades to open an account. 

Commission and fees

As economists say, there is no free lunch. Although recently many brokers have been running to reduce or eliminate commissions on trades, and ETFs offer to invest all those who can trade with a bare-bones brokerage account, all brokers need one from their clients Or have to earn money in another way. 

In most cases, your broker buys a commission each time that you are buying stock, either buying or selling. Trading fees range from the lower end of $ 2 per trade but maybe as high as $ 10 for some discount brokers. Some brokers do not charge any trade commission, but they try for it in other ways. There are no charitable organizations running brokerage services. 

Depending on how often you trade, these fees can add to and affect your profit. If you often invest in stocks with a small amount of money available to invest, investing in stocks can be very expensive.

Remember, trade is an order to buy or sell shares in a company. If you want to buy five different stocks at the same time, this is seen as five different trades, and you will be charged for each. 

Now, imagine that you decide to buy the shares of those five companies with your $ 1,000. To do this, you will spend $ 50 in trading costs - assuming the fee is $ 10 - equal to 5% of your $ 1,000. If you invest $ 1,000 in full, your account will be reduced to $ 950 after trading costs. This represents a 5% loss before your investment even has a chance to earn. 

Should you sell these five shares, you will pay the cost of the trades once again, which will be $ 50. You will have to spend $ 1,000 to make a round trip (buy and sell) on these five shares, or 10% of your $ 1,000 initial deposit. If your investment has not earned enough to cover it, then you have lost money just by entering and exiting positions. 

Mutual Fund Load (Fee) 

Apart from trading fees for purchasing mutual funds, there are other costs associated with this type of investment. Mutual funds are professionally managed pools of investor funds that invest in a focused manner, such as large-cap US stocks. 

An investor will pay several fees for investing in a mutual fund. One of the most important fees to consider is the management expense ratio (MER), which is charged by the management team each year based on the number of assets in the fund. The MER ranges from 0.05% to 0.7% annually and depends on the type of fund. But the higher the MER, the more it affects the overall return of the fund. 

When you buy a mutual fund you may incur several sales fees, which are called loads. There are some front-end loads, but you will also see no-load and back-end load funds. Make sure you understand whether the fund you are considering will have to bear the sales load before purchasing. If you want to avoid these additional charges, check your broker's list of no-load funds and no-transaction-fee funds.

In the context of the initial investor, the mutual fund fee is actually an advantage relative to the commission on the shares. The reason for this is that the fees are the same regardless of the amount you invest. So, as long as you meet the minimum requirement to open an account, you can invest $ 50 or $ 100 per month in a mutual fund. The term is called dollar-cost averaging (DCA) and can be a great way to start investing.

Diversify and reduce risk 

Variety in investment is considered a free food. In short, by investing in a range of assets, you reduce the risk of performing an investment that severely damages your overall investment return. You can think of it as financial jargon for "don't put all your eggs in one basket." 

In terms of diversification, the greatest amount of difficulty in doing so would come from investing in shares. As mentioned earlier, the cost of investing in a large number of shares can be harmful to the portfolio. With a $ 1,000 deposit, it is almost impossible to have a well-diversified portfolio, so keep in mind that you may need to invest in one or two companies (at most) to get started. This will increase your risk. 

This is where the major benefit of a mutual fund or exchange-traded fund (ETF) comes into focus. Both types of securities have a large number of stocks and other investments within the fund, which makes them more diversified than single stocks.


If you are starting out with a little money, then it is possible to invest. It is more complicated than just choosing the right investment (a feat that is quite difficult in itself) and you as a new investor should be aware of the restrictions. 

You have to do your homework to find the minimum deposit requirements and then compare the commission with other brokers. Chances are you won't be able to buy individual shares cost-effectively and still be diversified with a little bit of money. You also have to choose which broker you want to open an account with.

Wednesday, 30 September 2020

What is Wealth Management? Here's everything you need to know about Wealth Management

September 30, 2020
What is Wealth Management? Here's everything you need to know about Wealth Management

Wealth management is very straightforward. From the perspective of the affluent, wealth management is simply the science of resolving/enhancing his financial situation. From a financial advisor's point of view, wealth management is the ability of an advisor or advisory team to provide a full range of financial services and products to a client endowed in a consultative manner.

Theoretically, a wealth manager can provide every single financial product in existence. In fact, most wealth managers specialize in services and products with which they feel most comfortable.

Another decisive quality of wealth management is that it is given in a consultative manner. Being a consultant, wealth managers are truly customer-focused. A good wealth manager meets a customer unconditionally about what financial products or services are suitable for that rich person.

What is wealth management?

Wealth management is an investment advisory service that combines other financial services to meet the needs of affluent clients.  It is a consultative process whereby the consultant obtains information about the client's wishes and a Bespoke strategy using appropriate financial products and services.

wealth management
                                                  Wealth Management                                       

A wealth management advisor or wealth manager is a type of financial advisor who uses the spectrum of financial topics available to manage the wealth of an affluent client, such as financial and investment advice, legal or estate planning, accounting, and tax services.  And retirement planning.  For a set fee.  Wealth management practices vary depending on the nation, such as you are in the United States vs. Canada.

Understanding Wealth Management

Wealth management is more than just investment advice, as it can cover all parts of a person's financial life. The idea is that instead of trying to integrate pieces of advice and different products from a range of professionals, high net worth individuals benefit from a holistic approach in which a single manager can do all that is necessary to manage their money Coordinates services or plans for their family's current and future needs.

While the use of a wealth manager is based on the principle that it can provide services in any aspect of the financial sector, some opt for specialization in particular areas. This may be based on the expertise of the money manager in question, or the primary focus of the business within which the wealth manager operates.

In some instances, a wealth management consultant may have to coordinate input from external financial experts as well as the client's own agent (lawyer, accountant, etc.) to design the optimal strategy for the client's benefit. Some wealth managers also provide banking services or advice for philanthropic activities.

A wealth management consultant needs rich people, but not all affluent people require a wealth management consultant. This service is generally suitable for the wealthy, who have a wide range of diverse needs.

key takeaways

(i) Wealth management is an investment advisory service that combines other financial services to meet the needs of affluent clients.

(ii) A wealth management consultant is a high-level professional who manages the wealth of an affluent client for a set fee.

(iii) Thriving clients benefit from a holistic approach in which a single manager coordinates all the services needed to manage their money and make plans for the current and future needs of his or her family.

(iv) This service is generally suitable for the wealthy, who have a wide range of diverse needs.

How does wealth management work?

Wealth Management combines both financial planning and specialized financial services, including personal retail banking services, estate planning, legal and tax advice, and investment management services.

The goal of wealth management is to maintain and develop long-term wealth. The net worth required to qualify for wealth management services varies between institutions, but the net price range starts at around $ 20 million. Furthermore, depending on the institution, the range of services available is highly customizable to meet the specific needs of the client.

Wealth management example

For example, that indirect employment of a firm known to invest may have more knowledge in the field of market strategy, while those employed in the employment of a large bank may be more likely to manage trusts and provide available credit options such as Areas can focus on, overall estate planning or insurance options. The position is considered advisory in nature, as the primary focus is providing the necessary guidance to those using the wealth management service.

Wealth Management Business Structures

Wealth managers may work as part of a small scale business or as part of a larger firm, which is typically associated with the finance industry. Depending on the business, wealth managers may function under various headings, including financial advisors or financial advisors. A client may receive services from a designated wealth manager or may access members of a designated wealth management team.

Wealth Management Strategies

The wealth management begins by developing a plan that will maintain and increase the client's funds based on the risk, along with that person's financial condition, goals, and level of comfort. After the original plan is developed, managers regularly meet with clients to meet goals, review and rebalance financial portfolios and investigate whether additional services are required, with the ultimate goal being to serve the client. They have to last a lifetime.

Saturday, 12 September 2020

What Is a Mortgage? Types and Uses of Mortgage in 2020 | Billionaire Mentor

September 12, 2020
What Is a Mortgage? Types and Uses of Mortgage in 2020 | Billionaire Mentor
What is a Mortgage?

A mortgage is a loan instrument, secured by the collateral of specified real estate, that the borrower is obliged to pay back with a predetermined set of payments.

There are two components to your mortgage payment: principal and interest.  The principal refers to the loan amount.  Interest is an additional amount (calculated as a percentage of principal) that you charge from lenders for the privilege of borrowing money that you can repay on time.  During your mortgage term, you pay in monthly installments based on the amortization schedule set by your lender.

Another factor involved in pricing a mortgage is the annual percentage rate (APR), which measures the total cost of a loan.  The APR includes interest rates and other loan fees.

what is mortgage

Key Takeaways

(i) Mortgages are also known as "lie against property" or "claims on property".

(ii) With a fixed-rate mortgage, the borrower pays the same interest rate for the life of the loan.

(iii) A shareholder of the lender market includes non-banks.

Who Uses A Mortgage?

Individuals and businesses use mortgages to purchase large real estate without paying the entire purchase price.  Over many years, the borrower repays the loan, as well as the interest, until he makes the property free and clear.  Mortgages are also known as "lies against property" or "claims on property".  If the borrower stops paying the mortgage, the lender can forecast.  They are a form of correct inclusion.

In a residential mortgage, a homebuyer mortgages his home to a bank or other type of lender whose home claims the homebuyer should default when the mortgage is paid off.  In the case of a foreclosure, the lender may evict the tenants of the house and sell the house using the proceeds from the sale to vacate the mortgage loan.

Type of mortgage

Mortgages come in many forms. The most popular mortgages are 30-year fixed and 15-year fixed. Some mortgages can be as short as five years; Some maybe 40 years or older. Paying for more years reduces the monthly payment but increases the amount of interest to pay.

With a fixed-rate mortgage, the borrower pays the same interest rate for the life of the loan. The monthly principal and interest payments never change from the first mortgage payment to the last. If market interest rates rise, the borrower's payment does not change. If interest rates drop significantly, the borrower may be able to secure that lower rate by refinancing the mortgage. A fixed-rate mortgage is also called a "traditional" mortgage.

With an adjustable-rate mortgage (ARM), the interest rate is fixed for an initial period, then fluctuates with market interest rates. The initial interest rate is often a below-market rate, which can make a mortgage more affordable in the short term but possibly less affordable long term. If interest rates rise later, the borrower may not be able to afford higher monthly payments. Interest rates may also be lower, making ARM less expensive. In either case, monthly payments are unpredictable after the initial period.

Mortgages are used by individuals and businesses to purchase large real estate, without paying the entire purchase price.

Other less common types of mortgages, such as interest-only mortgages and payment-option ARMs, can involve complex repayment schedules and are best used by sophisticated borrowers. During the housing bubble of the early 2000s, many homeowners fell into financial distress with this type of mortgage.

Most mortgages used to purchase a home are forward mortgages. There is a reverse mortgage for homeowners 62 or older who want to convert part of the equity in their homes to cash. These homeowners borrow against the value of their home and receive money in the form of a lump sum, fixed monthly payment, or line of credit. The entire loan balance becomes due and payable when the borrower dies, moves permanently, or sells the home.

Perfect mortgage

The major lending banks are Wells Fargo, JP Morgan Chase, and Bank of America. Banks were in fact the only source of a mortgage. Today, a shareholder in the lender market includes non-banks such as Quick Loans, LonDepot, Sophie, Calar Home Loans, and United Wholesale Mortgage.

When shopping for a mortgage, it is beneficial to use a mortgage calculator to estimate the monthly payment. These tools can help you calculate the total cost of interest over the life of a mortgage, allowing you to know exactly what the value of a property will be.

The mortgage servant can also set up an escrow account, aka an unqualified account, to pay certain property-related expenses. The money going into the account comes from a portion of the monthly mortgage payment. 2

According to the US Consumer Financial Protection Bureau, lenders sometimes have to use escrow to pay taxes and insurance.

Six main types of mortgages:

Not all mortgage products are created equal. Some have more stringent guidelines than others. Some lenders may require a 20% down payment, while others require 3% of the purchase price of the home. To qualify for certain types of loans, you need antiquated credit. Others are noted towards borrowers with minimal stellar credit. The US government is not a lender, but it guarantees certain types of loans that meet stringent eligibility requirements for income, loan limits, and geographic areas. There are a bunch of different possible mortgage loans here.

Fannie Mae and Freddie Mac are two government-sponsored enterprises in the U.S. Most traditional mortgages in buy and sell.

Conventional Mortgage

A traditional loan is a loan that is not supported by the federal government. Borrowers with good credit, stable employment and income history, and the ability to make 3% down payments can usually qualify for traditional loans bought and sold by Fannie Mae or Freddie Mac, two government-sponsored enterprises that purchase traditional mortgages. Are and sell. United States. 2 To avoid the need for private mortgage insurance (PMI), borrowers are usually required to make a 20% down payment. Some lenders also offer traditional loans with low down payment requirements and no private mortgage insurance (PMI).

(a) Conforming to Mortgage Loan

Conforming loans are tied to the maximum loan limits set by the federal government. These boundaries vary by geographic region. For 2020, the Federal Housing Finance Agency set the baseline loan limit for one-unit assets to $ 510,400. However, the FHFA sets a higher maximum loan limit in parts of the country (for example, in New York City or San Francisco). Because house prices in these high-cost areas are at least 115% or more above the baseline loan limit.

$ 510,400
Customizing Mortgage Loan Limit for a Unit Property in 2020.5

(b) Non-Conforming Mortgage Loan

Due to the loan amount or underwriting guidelines, non-conforming loans generally cannot be sold or purchased by Fannie Mae and Freddie Mac. Jumbo loans are the most common type of non-conforming loan. They are called "jumbo" because the loan amount usually corresponds to the loan limit. These types of loans are risky for a lender, so borrowers will typically have to show larger cash reserves, make a down payment of 10% to 20% (or more), and have stronger credit.

(c) Government Insured Federal Housing Administration (FHA) Loan

First-time home-buying middle- to low-income buyers typically turn to loans insured by the Federal Housing Administration (FHA) when they cannot qualify for traditional loans. Borrowers can keep up to 3.5% of the purchase price of a home. FHA loans require more credit-requirement than traditional loans. However, the FHA does not lend money directly; It guarantees loans by FHA-approved lenders. One drawback of FHA loans: All borrowers pay an advance and an annual mortgage insurance premium (MIP) - a type of mortgage insurance that protects the lender from lender default for the life of the loan-

FHA loans are best for low-to-middle-income borrowers who may not qualify for a traditional loan product or anyone who cannot make a significant down payment. FHA loans allow FICO scores as low as 500 to qualify for a 10% down payment - and less than 580 to qualify for a 3.5% down payment.

(d) Government Insured Veterans Affairs (VA) Loan

The US Department of Veterans Affairs guarantees homebuyer loans for qualified military service members, veterans, and their spouses. Borrowers can finance 100% of the loan amount without any required down payment. Other benefits include a cap on closing costs (may be paid by the seller), no broker fees, and no MIP. VA loans require a "money charge", a percentage of the loan amount that helps taxpayers offset costs. Funding fees vary depending on your military service category and loan amount. The following service members do not have to pay fund charges: 9

Veterans receiving VA benefits for a service-related disability

People who will be entitled to VA compensation for service-related disability if they do not pay retirement or active fees.

Spouse of veterans who died in service or due to service-related disability

VA loans are best for qualified active military personnel or veterans and their spouse who want highly competitive terms and a mortgage product to suit their financial needs.

(e) Government-insured US Department of Agriculture (USDA) loan

The US Department of Agriculture guarantees loans to help low-income buyers in rural areas own a home. These loans require little money for qualified borrowers - as long as the properties meet USDA's eligibility rules. 10

USDA loans are best for homebuyers in eligible rural areas who have lower-incomes, less money saved for lower payments, and are not otherwise eligible for the traditional loan product.

Fixed-rate mortgage

Mortgage terms, including the length of repayment, are a major factor in how a lender decides the value of your loan and your interest rate. Fixed-rate loans are those such as a fixed interest rate for the life of the loan, typically 10 to 30 years. If you want to pay off your home faster and make higher monthly payments, then a short-term fixed-rate loan (15 or 20 years) helps you get away from time and interest payments. You will build equity in your home very fast.

Opting for a low fixed-term mortgage means that the monthly payment will be higher than for a long-term loan. Crunch the numbers to ensure your budget can handle higher payments. You may also factor in other goals, such as saving for retirement or emergency funds.

Fixed-rate loans are ideal for buyers who plan to stay for several years. A 30-year fixed loan can shirk you to meet other financial needs. However, if you have little risk and a hunger for resources and discipline to pay off your mortgage faster, a 15-year fixed loan can save you significantly on interest and cut your repayment period in half.

Adjustable-rate mortgages are riskier than the fixed-rate, but it makes sense whether you plan to sell the house or refinance the mortgage in the near term.

Adjustable-rate mortgage

Adjustable-rate mortgages (ARMs) have a fixed rate for an initial period of three to 10 years, but after that period the rate fluctuates with market conditions. These loans can be risky if you are unable to pay a higher monthly mortgage payment if you reset the rate. Some ARM products have a rate cap that specifies that your monthly mortgage payment cannot exceed a certain amount. If so, crunch the numbers to make sure you can potentially handle any payment growth up to that point. Count not being able to refinance your mortgage before selling your home or resetting your ARM as market conditions and your finances may change.

ARM is a solid option if you do not plan to live in the home beyond the initial set period or know that you intend to refinance before resetting the loan. Why? Interest rates for ARMs are lower than the rates set in the early years of repayment, so you can potentially save thousands of dollars on interest payments in the early years of a home workshop.

First aid program

Special programs sponsored by states or local housing authorities provide special assistance for first-time buyers. Many of these programs are available based on buyers' income or financial need. These programs, which typically provide assistance in the form of a down payment grant, can save significant money on closing costs to first-time borrowers.

The US Department of Housing and Urban Development lists homebuyer programs for the first time by the state. Select your state and then choose "Homebuying Assistance" to find the program closest to you.

Mortgage lending discrimination is illegal. If you feel that you have been discriminated against on the basis of race, religion, gender, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report with the Consumer Financial Protection Bureau and/or the Department of Housing and Urban Development (HUD).

Mortgages for First-Time Buyers

All these loan programs (with the exception of first-time homebuyer assistance programs) are available to all homebuyers, whether it is purchasing your first or fourth time home. Many people think that FHA loans are only available to first-time buyers, but repeat borrowers may qualify as long as the buyer has owned the primary residence for at least three years.

Choosing the best loan for your situation depends primarily on your financial health: your income, credit history and score, employment, and financial goals. Mortgage lenders can help analyze your finances to help determine the best loan products. They can also help you better understand the qualification requirements, which are complex. A helpful lender or mortgage broker can also give you homework to target areas of your finances to make improvements - putting you in the strongest position to obtain a mortgage and purchase a home.


Mortgages, perhaps, come with a lot more variables than any other loan that should be repaid and when to begin. Homebuyers should work with a mortgage specialist to make one of the biggest investments of their lives.

No matter what type of loan you choose, check your credit report in advance to see where you stand. You are entitled to a free credit report from one of the three main reporting bureaus every year through an annual credit card. From there, you can spot and fix errors, work on paying off the loan, and improve any history of late payments before contacting the mortgage lender.

  It can be beneficial to pursue financing before you are serious about looking at homes and making offers. If you keep a promotional letter in hand, you can act more quickly and it can be taken more seriously by the vendors

Sunday, 6 September 2020

Fundamental analysis of stocks in 2020 | Brief Explanation

September 06, 2020
Fundamental analysis of stocks in 2020 | Brief Explanation
Fundamental analysis of the stock market

Fundamental analysis (FA) is a method of measuring the intrinsic value of a security by examining related economic and financial factors. Fundamental analysts study anything that can affect the value of the security, such as the state of the economy and industry conditions, from microeconomic factors such as the effectiveness of a company's management.

fundamental analysis
Fundamental Analysis of stocks

The ultimate goal is to arrive at a number that an investor can compare the security with the current price to see if the security is undervalued or overvalued.

This method of stock analysis is considered in contrast to technical analysis, which estimates the direction of prices through analysis of historical market data such as price and volume.

key takeaways

a) Fundamental analysis is a method of determining the actual or "fair market" value of a stock

b) Fundamental analysts search for stocks that are currently trading at prices that are higher or lower than their true value.

c) If the fair market value is higher than the market price, the stock is considered undervalued and a purchase recommendation is made.

d) In contrast, technical analysts ignore the fundamentals in favor of studying the stock's historical price trends.

Understanding Basic Analysis

All stock analyzes try to determine whether the security has true value within the broader market. Fundamental analysis is typically performed from a macro to a micro-point of view to identify securities that are not correctly priced by the market.

Analysts typically study the strength of a specific industry before focusing on the performance of the individual company to arrive at the overall state of the economy and then the fair market value for the stock.

Fundamental analysis uses public data to evaluate the value of a stock or any other type of security. For example, an investor can perform a fundamental analysis by looking at economic factors such as the interest rate and the overall state of the economy on the value of the bond, then
  Studying information about a bond issuer, such as a possible change in its credit rating.

For stocks, the fundamental analysis uses revenue, earnings, future growth, return on equity,

Profit margin, and other data to determine a company's underlying value and potential for future growth. All this data is available in a company's financial statements (more on that later).

Investment and Fundamental Analysis

An analyst works to create a model for determining the estimated value of a company's share price based on publicly available data. This value is only an estimate, the analyst's educated opinion, of what the company's share price should be compared to the currently traded market price. Some analysts refer to their estimated price as the intrinsic value of the company.

If an analyst calculates that the stock's value should be significantly higher than the current market price of the stock, they may publish a buy or overweight rating for the stock. This serves as a recommendation for investors who follow that analyst. If the analyst calculates a lower intrinsic value than the current market price, the stock is considered overvalued and a recommendation to sell or underweight is issued.

Investors following these recommendations will be expected to buy stocks with favorable recommendations as such stocks should be more likely to grow over time. Similarly, stocks with unfavorable ratings are more likely to fall in value. Such stocks are added to the existing portfolio as exits or "short" positions.

This method of stock analysis is considered in contrast to technical analysis, which estimates the direction of prices through analysis of historical market data such as price and volume.

Quantitative and qualitative fundamental analysis

The problem with defining the term fundamentals is that it can cover anything related to the economic wellbeing of a company. They explicitly include numbers such as revenue and profit, but they can include anything from a company's market share to the quality of its management.

Different fundamental factors can be divided into two categories: quantitative and qualitative. The financial meaning of these terms is not very different from their standard definitions. Here's how a dictionary defines the terms:

1) Quantitative - "Related to information that can be displayed in numbers and quantities." 

2) Qualitative - "Relating to the nature or standard of a thing, rather than its quantity." 

In this context, quantitative fundamentals are hard numbers. They are measurable characteristics of a business. This is why financial statements are the biggest source of quantitative data. Revenue, profit, assets, and more can be measured with great precision.

The qualitative fundamentals are less tangible. These may include the quality of the company's key executives, recognition of its brand-name, patents, and proprietary technology.

Neither qualitative nor quantitative analysis is inherently superior. Many analysts consider them together.

Qualitative fundamentals to consider

There are four main fundamentals that analysts always consider in relation to a company. All are qualitative rather than quantitative. they include:

i) Business model: what exactly does the company do? It is not as simple as it seems. If a company's business model is based on selling fast-food chicken, is it making its money this way? Or is it just on royalties and franchise fees?

ii) Competitive Advantage: The long-term success of a company is driven largely by its ability to maintain and retain a competitive advantage. Powerful competitive advantages, such as Microsoft's domination of Coca-Cola's brand name and personal computer operating system, create a moat around a business that allows it to keep competitors at bay and enjoy growth and profits. When a company can gain a competitive advantage, its shareholders can be well rewarded for decades.

iii) Management: Some believe that management is the most important criterion for investing in a company. This makes sense: even if the company leaders fail to execute the plan properly, the best business model is doomed. Although it is difficult for retail investors to meet and truly evaluate managers, you can check the corporate website and check the resumes of the top brass and board members. How well did they perform in previous jobs? Have they been taking off many of their stock shares recently?

iv) Corporate Governance: Corporate governance describes policies within an organization that reflect the relationships and responsibilities between management, directors, and stakeholders. These policies are defined and laid down in company laws and regulations, as well as in the company charter and its bye-laws. You want to do business with a company that operates ethically, fairly, transparently, and efficiently. Note in particular whether management respects shareholder rights and shareholder interests. Ensure that their communications to shareholders are transparent, clear, and understandable. If you don't get it, it's probably because they don't want you.
It is also important to consider a company's industry: customer base, market share among firms, industry-wide growth, competition, regulation, and the business cycle. Learning about how the industry works will give an investor a deeper understanding of the financial health of the company.

Financial statement: quantitative fundamentals to consider

A financial statement is the means by which a company discloses information related to its financial performance. Followers of fundamental analysis use quantitative information derived from financial statements to make investment decisions. The three most important financial statements are the income statement, balance sheet, and cash flow statement.

i) Balance sheet

The balance sheet represents the record of assets, liabilities, and equity of the company at a particular time. The balance sheet is named by the fact that the financial structure of a business is balanced in the following way:

                     Assets = Liabilities + Shareholder Equity

Assets represent the resources that the business owns or controls at a given point in time. This includes items such as cash, inventory, machinery, and buildings. The other side of the equation represents the total value of financing used by the company to acquire those assets. Financing comes as a result of liabilities or equity. Liabilities represent debt (which must be paid back in due course), while equity represents the total value of money that owners have contributed to the business - including retained earnings, a Gain made in previous years. is.

 ii) Income details

While the balance sheet takes a snapshot approach in examining a business, the income statement measures a company's performance over a specific time frame. Technically, you can have a balance sheet for a month or a day, but you will only report quarterly and annually to public companies.

The income statement presents information about revenue, expenses, and profits generated as a result of the operation of the business for that period.

iii) Statement of Cashflows

A statement of cash flows shows a record of a business' cash flow and outflow over a period of time. Typically, a statement of cash flows focuses on the following cash-related activities:

Cash from Investment (CFI): Cash used to invest in property, as well as income from the sale of other businesses, equipment, or long-term assets

Cash from Financing (CFF): Cash issued and borrowed from funds

Operating Cash Flow (OCF): Cash generated from day to day business operations

The cash flow statement is important because it is very difficult for a business to manipulate its cash position. There is much that aggressive accountants can do to manipulate earnings, but it is hard to fake cash in the bank. For this reason, some investors use the cash flow statement as a more conservative measure of a company's performance.

Concept of Intrinsic value

One of the primary assumptions of fundamental analysis is that the present value from the stock market often does not fully reflect the value of the company supported by publicly available data. A second assumption is that the value reflected from the company's basic data is more likely to be close to the stock's true value.

Analysts often refer to this imaginary real value as intrinsic value. However, it should be noted that this meaning of the phrase internal use is somewhat different in-stock valuation than it means in other contexts such as options trading. Option pricing uses a standard calculation for intrinsic value, although analysts use various complex models for the stock to arrive at its intrinsic value. There is not a single, generally accepted formula for arriving at the intrinsic value of a stock.

For example, say a company's stock was trading at $ 20, and after extensive research on the company, an analyst determined that it should be valued at $ 24. Another analyst does equal research but determines that it should cost $ 26. Many investors will consider the average of such estimates and believe that the intrinsic value of the stock may be near $ 25. Often investors consider these estimates highly relevant information because they want to buy stocks that are trading at prices well below these intrinsic values.

This leads to a third major assumption of fundamental analysis: in the long run, the stock market will reflect fundamentals. The problem is, no one knows how long "long" really is. It can be day or year.

This is the fundamental analysis. By focusing on a particular business, an investor can estimate the intrinsic value of a firm and find opportunities to buy at a discount. When the market catches the fundamentals, the investment will stop.

Criticism of fundamental analysis

The greatest criticism of fundamental analysis comes mainly from two groups: proponents of technical analysis and believers of the efficient market hypothesis.

1) Technical Analysis

Technical analysis is the second primary form of security analysis. Simply put, technical analysts base their investments (or, more accurately, their trades) only on the price and volume movements of the shares. Using charts and other tools, they trade at speed and ignore the basics.

One of the core principles of technical analysis is that the market discounts everything. All news about a company is already in stock. Therefore, stock price moves give more insight than the underlying fundamentals of the business.

2) Efficient market hypothesis

However, adherents to the efficient market hypothesis (EMH) are generally in disagreement with both fundamental and technical analysts.

The efficient market hypothesis states that it is essentially impossible to beat the market through fundamental or technical analysis. Since the market efficiently prices all stocks on a continuum basis, any opportunity for additional returns is quickly taken away by many market participants, making it impossible for anyone to outperform the market in the long term. goes.

Examples of fundamental analysis:

Take the Coca-Cola Company for example. When examining your stock, an analyst must look at the stock's annual dividend payout, earnings per share, P / E ratio, and various other quantitative factors. However, no analysis of Coca-Cola is complete without taking into account its brand identity. Anyone can start a company that sells sugar and water, but some companies are known to billions. It is hard to put a finger on what a Coke brand deserves, but you can be sure that it is an essential component contributing to the continued success of the company.

Even the entire market can be evaluated using fundamental analysis. For example, analysts looked at the S&P 500 fundamental indicators from July 4 to July 8, 2016. During this time, the S&P reached 2129.90 after the release of positive jobs reports in the United States. In fact, the market just missed a new record high, falling to a May 2015 high of 2130.82.3. The economic surprise of an additional 287,000 jobs in the month of June 4 increased the value of the stock market, particularly on July 8, 2016.

However, there are different views on the actual value of the market. Some analysts believe the economy is growing for a bear market, while other analysts believe it will continue as a bull market.

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