INVESTMENT FUNDAMENTALS AND SECURITY ANALYSIS

The process by which evaluation and examination of the various factors that influence the performance of the security in the market. It is also termed as valuing the equity, asset, debt and warrants etc using the information that is available publicly. The person who does this process is called as security analyst. A security analyst must be in a position to understand the various financial statements, as the financial statement is an important source of information. This way of analyzing the security takes place from an investor point of view.

There are basically two method used they are,

• Fundamental analysis is a method in which the external factors are taken into consideration. In case of bond evaluation the factors like economic condition, interest rate, credit rating etc are taken into consideration, whereas in case of stocks revenues, earning, return on equity, profit margin etc are taken into consideration.
• Technical analysis is a method in which the analyst never cares about the value of the security. They decide upon the price movement of the security based on the price movement of the security in the market. The main factor that a technical analyst studies is the supply and demand factor. They decide upon the price of the security based on this.

The above two methods are the one that are widely used in making investment decision regarding security. In case of long term investments the fundamental analysis are used. In case of short term investment decision technical analysis are used. The logic behind the above strategy is that in case of long term investment the company performance as a whole is important, whereas in short term investment the security price move depends on the market fluctuation to a greater extend. Technical analysis and fundamental analysis mostly do not go hand in hand.

The investor must make decision whether to adopt technical analysis or fundamental analysis based on the time period of investment. There is other market risk that is not taken care in the above two analysis. It can be used as one of the tools to make decision, complete dependents on these tools to make investment decision is not usually appreciated.