Fundamental analysis versus Technical analysis

Two schools with two opposite ways of investing

The technical analysis method is based on statistical indicators extracted from charts or other signs and figures in order to predict when to buy and when to sell. It is also known as chartist. This technique assumes that any news is reflected in a chart. Therefore, a careful study of this chart will give indications of what could happen in the future. Speculators use these chartist techniques in order to place their purchase or sale bets.  “Technicians” are only interested in share price (or volume) record and the statistical studies derived from them.

The fundamental analysis method is based on different share selection techniques according to a company’s financial information. Fundamentalists aim to estimate the company’s intrinsic value through the analysis of its assets, sales, gains, dividends and especially its growth. Buying is recommended whenever the company’s intrinsic value is above the market’s price.Fundamentalist try not to be influenced by optimism or pessimism and they try to establish the difference between the current prince of a share and the share’s true value. “Value investors“ base their investments upon fundamental analysis in order to take long-term positions when they detect that the company’s intrinsic value exceeds the current price.

Fundamentalists despise technicians and vice versa.

Inbestme’s Scope

Our objective is to try to find those positive issues in all the practises and techniques we’ve learned over the years.

Base on our on-site experience, chart analysis can be very useful to clearly visualize what happen or what is happening now, but it doesn’t give much information about what could happen in the future. Yet what occurred in the past can be helpful to identify interesting facts, minimums, maximums, volatility, over-purchase or over-sales, or if the share is reaching a long-term average. From our point of view, this information is not enough to invest (as we clearly position ourselves as investors not speculators). However, it can help us make up our mind:

  • Add more money in a share we follow because it is reaching its minimum levels.
  • Accelerate the market entry in terms of global market analysis.
  • Stopping or slowing down the entry into the market because we clearly are in an over-purchase situation.

Under no circumstances we consider technical analysis as a basis to invest in a company due to its signal. The information provided by charts is considered as complementary. In fact, if you ever read a technicians report you will see it is full of expressions such as:  “if it overcomes resistance …then “or “if the support falls out…” or “maybe”. In other words, making decisions turns out to be very difficult with all those conditional sentences. The best way to define technical analysis is by referring to it as an inexact science that becomes useful to highlight “technical milestones” that can help us understand market or asset timing.

Although our investment decisions depend more on fundamentalist criteria we have a much broader view. It has been proven that fundamental analysis is complex and subject to growth expectations that are difficult to calculate or to test. Therefore, fundamental analysis mustn’t be taken as a guarantee of success.

Companies with high- growth and low multiples (PER or better PEG <1) are a safe value as it multiplies our chances.

We try to find value in a broader sense and / or combine multiple profiles creating portfolio pyramids in our customized portfolios.

In our diversified portfolios we combine different asset classes and regions to optimize returns according to the investor profile.

Inbestme is your online financial advisor. Know your investor profile and start investing as soon as possible. We help you take better control of your finances.

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