If you've read our guide on the differences between fundamental and technical analysis, you may now be hoping to learn about each strategy in more detail. Here, we will walk you through how to conduct fundamental analysis when doing your market research.

What is fundamental analysis?

In short, fundamental analysis is a way of looking at the stock market by analyzing economic, social and political forces that may affect the supply and demand of a company's products or services. By doing this type of research, you can get an idea of how these factors might impact the financial performance of a company, and ultimately its share price.

There are two main types of fundamental analysis: quantitative and qualitative. Quantitative analysis looks at a company's financial statements to determine things like its earnings per share (EPS), price-to-earnings (P/E) ratio and dividend yield. Qualitative analysis, on the other hand, takes into account non-financial factors such as a company's management team, competitive advantages, and business model.

Why use fundamental analysis?

There are a few reasons why you might want to use fundamental analysis in your market research. First, it can help you identify companies that are undervalued by the market. Second, it can give you a sense of a company's long-term prospects, which is especially important if you're looking to invest for the long haul. Finally, understanding a company's fundamentals can help you make more informed investment decisions and limit your exposure to risk.

If you want to teach yourself how to conduct fundamental analysis, it may be worth joining a trading community. SokuSwap have an active Discord and Telegram channel on which you may be able to find advice from other traders about how to start fundamental analysis yourself. 

How to do fundamental analysis

Gather data

The first step in conducting fundamental analysis is to gather data on the companies you're interested in. This data can come from a variety of sources, including the company's financial statements, annual reports, analyst research, and SEC filings.

Analyze the data

Once you have all of the necessary data, it's time to start your analysis. As we mentioned earlier, there are two main types of fundamental analysis: quantitative and qualitative.

If you're doing quantitative analysis, you'll want to look at things like a company's EPS, P/E ratio and dividend yield. You can then use this information to compare a company's stock price to its intrinsic value and identify whether or not it is undervalued by the market.

If you're doing qualitative analysis, on the other hand, you'll want to focus on things like a company's management team, competitive advantages, and business model. By taking all of these factors into account, you can get a better sense of a company's long-term prospects and make more informed investment decisions.

Best practices for using fundamental analysis

1. Use multiple data sources

When conducting your research, it's important to use multiple data sources to get a well-rounded view of a company. This means looking at things like financial statements, analyst research, annual reports, and SEC filings.

2. Consider both quantitative and qualitative factors

As we mentioned earlier, there are two main types of fundamental analysis: quantitative and qualitative. When doing your research, it's important to consider both types of factors in order to get a complete picture of a company.

3. Stay up-to-date on current events

One of the most important things to remember when doing fundamental analysis is to stay up-to-date on current events. This is because economic, social and political forces can have a big impact on a company's financial performance.

4. Be patient

Investing is a long-term game, so it's important to be patient when conducting your research. This means not rushing into any decisions and taking the time to truly understand a company before making an investment.

5. Have realistic expectations

It's important to have realistic expectations when doing fundamental analysis. This means understanding that there will always be some uncertainty and that no research method is perfect. By following these best practices, you can set yourself up for success when conducting your fundamental analysis.

Frequently asked questions

What are the benefits of fundamental analysis?

The benefits of fundamental analysis include:

- Identifying companies that are undervalued by the market

- Gaining a sense of a company's long-term prospects

- Making more informed investment decisions

- Limiting your exposure to risk

What are the steps of fundamental analysis?

The steps of fundamental analysis are, gather data , analyze the data, use multiple data sources, consider both quantitative and qualitative factors, stay up-to-date on current events, be patient and have realistic expectations.

What are the tools of fundamental analysis?

The tools of fundamental analysis include: financial statements, analyst research, annual reports and SEC filings.

Is fundamental analysis better than technical analysis?

There is no definitive answer to this question as both technical analysis and fundamental analysis have their own advantages and disadvantages. It's ultimately up to the individual investor to decide which type of analysis is more suited to their investment style and goals.

Posted 
Jul 16, 2022
 in 
DeFi Education
 category

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