Fundamental analysis has been made a very complicated term by the market jugglers. However I have succeeded to find out a straightforward description of the concept. Fundamental analysis is performed by stock trader who wants to invest in stocks, futures or any marketable securities traded in the stock exchange to earn the abnormal profit. Here we go, “fundamental analysis is all about finding the mistake by the market activity. It makes the heavy returns available through several means if correctly done and interpreted. I am drawing a list of 5 different kind of benefits of fundamental analysis to any stock trader.
- Abnormal Profits/ Gains
Abnormal Profit is a term repeatedly used in the stock exchange studies especially when talking about stock market efficiency. It is simply to earn excess returns against any mistake done in the market activity. For example, you can make excess return if you remain successful to find an undervalued share in the market and buy it when it was undervalued. When it gets its original value back, a stock trader even can be successful to get higher gains.
- Market Drives
There are several forces or signals that can only be read through analyzing the market through fundamental means. For example, companies use Signaling Technique to show off any of the favorable decision before actually disseminating the real information. It is just to get the value of the news reflected in the stock prices even before publication of the news. This technique is accounted for many market activity mistakes. Investors overvalue the stocks on the basis of signals. If a fundamentalist is present in the market, he can easily find the mistake and can further be nominated to monetary benefit.
- Bottom up investors
It is a basic driver for a stock trader who is leaned to start his or her from bottom to top while initiating his stock portfolio. A bottom up investor will start watching the market at the very first. As they are interested to make returns in short term and make their decisions by keeping the speculation in view.
- Company Value
Along with the associated concept or slogan, “speculation in the action”, the fundamental analysis is very helpful to find out the real value of the company. Apart from speculation purpose, it can help the value investor to find if the stocks were undervalued or overvalued so that their portfolio must not be bombarded with wrongly valued stocks.
- Top Down Approach
A complex procedure might become simple for the international investors who are looking for company analysis and country analysis side by side. It can help thru providing favorable insights about economy’s impact over the stock valuation and stock exchange over a period of time to several points of time.