Fundamental Analysis

[Pat494]

The difficulty with fundantal analysis seems to me to be quantifying all the news and current events.
If one could construct an index of say +100 to -100 based on the above it would make it much easier to understand the whole or bigger picture. Perhaps there is already a website somewhere doing just this ? If anyone knows of such a site perhaps they would like to post the address here ?
We all form our opinions from the world news particually. IE the changes in the price of commodities, specifically OIL at present, which really affects markets.

 

[roguetrader]

Does fundamental analysis take world news into account? That would not have been my understanding, but since I don't use it my understanding may be way off base. As to sites, I don't know of one that does what you have outlined, though there is one that ranks stocks by earnings results and expectations (I think) So the approach would produce a fundamental ranking of sorts.
http://www.zacks.com/
Don't know how much of it is free, or if it's any good.

 

[tomorton]

Pat494
I agree this is a problem, but is it one you have to solve in order to trade successfully? Maybe you can let the market do the analysis and you follow the trend.

I know a lot of fundamental investors who avidly follow the news, government / Fed announcements, company reports etc. but ironically few of them buy or sell just on these items. They see trading on news (such as M&A, bid rumours etc.) as just that - trading - which they tend to regard as a random and speculative method of investment.

Though they claim to be FA investors, the majority wait for the price to move in their preferred direction and then make a move. I have said before that in my opinion tis makes them technical analysts, though on the most basic leve - recent price action alone. Its certainly a rule of TA to trade what you see, not what you think.

 

[charliechan]

so, does price determine the fundamentals & news, or the fundamentals & news determine the price?

 

[TheBramble]

so, does price determine the fundamentals & news, or the fundamentals & news determine the price?

The former.

 

[charliechan]

i reckon so too.

 

[Pat494]

so, does price determine the fundamentals & news, or the fundamentals & news determine the price?

Surely it is mainly the latter. Sorry to disagree but if say transport costs suddenly rise it will affect the Dow etc. That is if it was not expected and already in the price. This is what confuses many. What should have say caused a price rise ( e.g. a fall in interest rates ) can actually have the opposite affect because the markets expected a bigger move.
To make a more accurate model of the markets there is also the perceived element of sentiment. Italy probably has it at the moment. The UK had it in 1966 !

 

[TheBramble]

Are you saying you couldn't consider a change in the DOW might lead to an increase in transport costs?

 

[TheBramble]

Fundamental analysis is what people do (well, analysts mostly, actually) to 'decide' how well a company is doing or is likely to do. It's a calculation of factors with a resultant that leads either to greater confidence over it's short to medium to long term prospects, or to less confidence.

But it's still a coin toss.

And there's nothing wrong with a good old coin toss with money and risk management blad di blah di blah. etc.

But Fundamental Analysis required poring over lots of data, economic theory, developing trends, KPI, historical success of specific people and their teams, consumer tastes etc. The more you add in , the muddier the picture is likely to get. Especially when economic theory itself is one of the few pseudo-scientific disciplines yet to be outed academically, but is recognised as being academically deficient.

You suggest just quantifying it (FA) on a scale of +/-1000 after putting all the news, current events etc, but all you'd end up with then is a number, rather than an analyst's report. It would just as flaky.

Earnings are down because the share price is down.

 

[roguetrader]

Deep Thought

You suggest just quantifying it (FA) on a scale of +/-1000 after putting all the news, current events etc, but all you'd end up with then is a number, rather than an analyst's report. It would just as flaky.

Then we could build a super computer to analyse this number.

 

[tomorton]

Careful of compounding qualitative assessments (i.e. FA), thinking this will increase accuracy of forecasting. If you are 90% certain some news means the FTSE will rise it is tempting to think that if you only found another bit of analysis that you were 90% certain also meant the FTSE would rise, then your likelihood of being wrong would now be less than 10%. In fact, if your two judgements are dependent on each other, possibly unknown to you, your certainty level is now 90% of 90% = 81%. So you have doubled the likelihood you will be wrong when you thought you were reducing it.

Or is this b**l**kspeak?

 

[TWI]

so, does price determine the fundamentals & news, or the fundamentals & news determine the price?

"Markets influence the events they attempt to anticipate" - Soros

I was bought up on a 100% fundamental picture of the markets when I started my career. I did not look at a price chart for 3 years and spent my days gathering all the information from offices all over the World , compiling supply/demand scenarios. Once a lot of work had been done I would send out mails suggesting a long or short would be a good idea ove the next year at this or that level. It was a long slow process and when building these big positions we would literally just continue to build them if the market went against us as we knew that our fundamental analysis was ulitmately going to pan out. I do not remember a year when we lost money but we certainly had some drawdowns along the way. Today I am entirely technical on flat price as I no longer have a global network that can provide information direct from source. I do consider the only good use of fundamentals these days is either as a comfort factor when technical sigs match the direction of the supposed fundamentals or when taking spread trades which often get out of line and can be related back to reality of how a given market operates in the spot.

 

[Pat494]

OK lets get right up to date:-
Is the probability of war in the Middle East the result of the markets dropping or some people chucking rockets, bombs etc at their enemies ?
Surely the possibility of the coming conflict is causing near panic over oil etc. Oil at $100 a barrel ??
You must be joking
It will be $100 * a figure > 1 if it starts in earnest.
Hence markets are falling.
It is hard to distinguish between the mickey takers and the misinformed
No offence meant but really .........................

 

[TheBramble]

Well Pat, if you had the means, and you wanted to push up the price of oil, before somehow establishing care-taker dominion over the largest remaining available supplies, would you do it?

Can you estimate just how much that would be worth. Both in a speculative phase (if you had the foresight to get in early enough ) on the swing up and on the eventual spiral down when you needed to sell it (sorry) have it sold back to you by a 3rd party - who may or may not be grateful for your support, when you actually needed to utilise the commodity itself?

 

[Pat494]

Well Pat, if you had the means, and you wanted to push up the price of oil, before somehow establishing care-taker dominion over the largest remaining available supplies, would you do it?

Can you estimate just how much that would be worth. Both in a speculative phase (if you had the foresight to get in early enough ) on the swing up and on the eventual spiral down when you needed to sell it (sorry) have it sold back to you by a 3rd party - who may or may not be grateful for your support, when you actually needed to utilise the commodity itself?

Perhaps you could clarify the above i.e. naming names.
Hopefully the PPI ( Kriesau's favourite foes ) or CIA wont find you tucked away in the Orient to "persuade you differently". No sign of Kriesau by the way since the Eurovision song contest ?? I think he may have fancied the one with the horns LOL

 

[chump]

On my P & F chart the market was sitting nicely to drop this week, it just needed an excuse (reason LOL) and the M East supplied one. When sentiment changes then Bernanke standing outside a Bureau De Change looking thoughtful would probably be enough to start a stampede....and if you get enough 'shocks' folowing on quickly enough then who knows when the stampede turns into a full blown rout...all you can do is manage the risk so you can live with it..

There are fundamentals and there are fundamentals...for instance do you think a good point to launch non inflationary growth would be when national & private levels of debt are at record highs and employment is at record lows for recent years. Add in the the cost of financing that debt has been steadily rising for the last 18 mths ish.
Sustainable non inflationary growth is much more likely to come when you are starting from a very low point ..cheap asset prices , debt levels recently reduced ,plenty of slack resources etc etc. Hey, I could be way wrong ,but i've been watching asset prices for the last couple of years stupefied by the logic of how investors expect to get a decent return from those assets in relation to what they could be getting free of risk at this time.
Appears to me people are still buying stocks on the basis of the record established from the 1980's bull market in the expectation that this is the norm rather than the exception. There are plenty of good reasons to be on the sidelines at the moment apart from trying to get neutral short term plays so you don't get killed by the volatility.

Pat ,
By the way I liked your points 1 to 6 although it will never happen unfortunately. We could just try locking the stupid pill...ks in a room without food and water until they sort matters out.