I would like to start by highlighting what the legendary Billionaire investor Warren Buffet once said. He started investing in the stock market at the age of 14 and he wished that he could have started earlier! When a journalist asked as to why he could’nt start before 14, he said that he did not have the right knowledge and the right guidance to study stocks at the time. It was only once he understood Fundamental Analysis that he started investing in stock markets! Mr Buffet was born in the year 1930 and Fundamental Analysis has been in existence for many years before that (it was used even in the 1800s). It has been used by many many investors like Benjamin Graham and its importance cannot be underscored enough.
This is how important Fundamental Analysis is for equity markets investing. Fundamental analysis (FA) is a method of evaluating a security in an attempt to measure its intrinsic value, by examining related economic, financial and other qualitative and quantitative factors. In simple words FA is used to analyze a company on the basis of the financial reports and documents that it submits as a publicly traded company. You are basically able to understand the sales it has, the cash earned, the cash on hand, the investments it has made, the various assets it owns and the funds that have been spent by it. This lets you as an investor make an informed decision about the future prospects of the company. You are able to compare the performance of a company on the basis of this analysis with its competitors, with the industry as a whole and may be able to understand the future prospects of the industry.
Thus, fundamental analysis is of great importance for all major investors, investment bankers, mutual fund managers, hedge funds, etc. It is an eye that gives them an insight in this industry. This is what lets people earn a 1000% return on their investment over a short period of time. A basic fundamental of FA is to understand each industry on its own. One must analyze an industry separate from the companies and try to understand what drives it, what are its pros/ cons and be ready with a SWOT analysis of it.
Analyzing each industry/ company is tough and a time consuming process. Networking is very important in this case. One may focus solely on an industry and can network effectively with like minded people to get the analysis of other industries. In this way, you also get a good perspective into other industries and other analysis techniques. BSE Institute Ltd (BIL) offers many short term courses for investors to be proficient equity investors. You can check them here.
Investing may sound tough, but it will be tough only if you make it. The fact that some banks and investors have been Billionaires for many years together means that it is actually not tough and can be mastered. FOCUS is all it will take – Follow one course until successful!