Investing Basics

Investing differs from trading in that investing is for the long-term, usually years or decades. Investing is one of the key strategies to building long-term wealth and financial security.

Learning Tip

Investing is a very vast topic to study. To simplify learning, we will study it on the basis of analysis. There are two types of asset analysis namely fundamental analysis and technical analysis. We will see them one by one.

Understanding

Types of Analysts

Stock Market has tons of analysts, strategists, and portfolio managers hired to beat the market. Analysts are hired to find undervalued stocks. Strategists are hired to predict the direction of the market and various sectors. Portfolio managers are hired to put it all together and outperform their benchmark for instance the S&P 500 index in US and Nifty 50 index in India.

Let’s look into the types of analysts:

A fundamental analyst believes that analyzing strategy, management, product, financial statistics, and many other readily and not-so-readily quantifiable numbers will help choose stocks that will outperform the market. They are also likely to believe that there’s little-to-no value in analyzing past prices and that technical analysts would be better off stargazing.

The technical analyst believes that the chart, volume, momentum, and an array of mathematical indicators hold the keys to superior performance. Technicians are just as likely to believe that fundamental data is complete hogwash.

There are the Random Walkers who believe that any attempt to try and outwit the market is futile.

Conclusion

Do These Analysis Really Work?

The debate concerning the value of analysis begins with the question of market efficiency.

What does the price of a stock or security represent? Is a security’s current price an accurate reflection of its fair value? Do anomalies exist that allow traders and investors the opportunity to beat the market by finding undervalued or overvalued securities?

There are different definitions of an efficient market. Aswath Damodaran, of the Stern Business School at New York University defines an efficient market as one in which the market price is an unbiased estimate of the true value of the investment.

That’s true, but it’s also an oversimplification. In an efficient market, the current security price fully reflects all available information and is the fair value.