Technical vs Fundamental Analysis*
• Technical analysis is the method of predicting the appropriate time to buy or sell a stock used by those adhering to the “castle-in-the-air” view of stock picking.
• Fundamental analysis is the method of applying tenets of the “firm-foundation” theory to the selection of securities.
• Technical analysts are normally chartists who rely on the making and interpreting of stock charts. They study the past – both the movements of common stock prices and the volume of trading – for a clue to the direction of future change.
• Most chartists believe that the market is only 10% logical and 90% psychological. Chartists study charts because charts show what other players have been doing. From this, chartists hope to decode the crowd’s future movements.
Fundamental analysts take the opposite track, believing that the markets are 90% logical and only 10% psychological. Therefore, fundamentalists seek to determine a stock’s true value, placing little emphasis on past price movement. They use growth rate, dividend payout, interest rates, risk, etc… (the fundamentals of security analysis) to determine an intrinsic value of the security at hand. 90% of Street analysts consider themselves fundamentalists.
• Fundamental analysis is the method of applying tenets of the “firm-foundation” theory to the selection of securities.
• Technical analysts are normally chartists who rely on the making and interpreting of stock charts. They study the past – both the movements of common stock prices and the volume of trading – for a clue to the direction of future change.
• Most chartists believe that the market is only 10% logical and 90% psychological. Chartists study charts because charts show what other players have been doing. From this, chartists hope to decode the crowd’s future movements.
Fundamental analysts take the opposite track, believing that the markets are 90% logical and only 10% psychological. Therefore, fundamentalists seek to determine a stock’s true value, placing little emphasis on past price movement. They use growth rate, dividend payout, interest rates, risk, etc… (the fundamentals of security analysis) to determine an intrinsic value of the security at hand. 90% of Street analysts consider themselves fundamentalists.
*Burton G. Malkiel, "A Random Walk Down Wall Street"
posted by Raphael Blogger at
10:55 PM
