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TECHNICAL AND FUNDAMENTAL ANALYSIS

Q: The fundamentalist uses four basic determinants to help estimate the proper value for any stock:

· Determinant 4: The level of market interest rates: The rise of interest rates can offer a stable, profitable alternative to the stock market. o Rule 4: A rational investor should pay a higher price for a share, other things equal, the lower the interest rates.

Q: The rules for using fundamental and technical analysis together:

· Rule 1: Buy only companies that are expected to have above–average earning growth for 5 or more years. · Rule 2: Never pay more for a stock than its firm foundation of value. · Rule 3: Look for stocks whose stories of anticipated growth are of the kind on which investors can build castles in the air.

5 important questions on TECHNICAL AND FUNDAMENTAL ANALYSIS

Why charting might fail to work:

Chartists only buy stocks after prices have been established and sell these after have been broken.
Certain techniques, such as those mentioned above, should be self–defeated. Plus, if more and more people will use this technique, its value of it will depreciate.
Traders try to anticipate technical signals. However, they should anticipate the rather early on the signals in order to make the trade profitable.

The difference between the fundamentalist and technician:

The technician is interested only in the record of the stock’s price, whereas the fundamentalist’s primary concern is with what a stock is really worth. The fundamentalist strives to be relatively immune to the optimism and pessimism of the crowd and makes a sharp distinction between a stock’s current price and its true value.

The fundamentalist uses four basic determinants to help estimate the proper value for any stock:

· Determinant 4: The level of market interest rates:
The rise of interest rates can offer a stable, profitable alternative to the stock market.

o Rule 4:
A rational investor should pay a higher price for a share, other things equal, the lower the interest rates.

Fundamental analysis might fail to work due to the following:

· Incorrect information and, therefore, the making of the wrong analysis.
· The security analyst’s estimate of “value” may be faulty.
· The stock price may not converge to its value estimate.

The rules for using fundamental and technical analysis together:

· Rule 1: Buy only companies that are expected to have above–average earning growth for 5 or more years.
· Rule 2: Never pay more for a stock than its firm foundation of value.
· Rule 3: Look for stocks whose stories of anticipated growth are of the kind on which investors can build castles in the air.

The question on the page originate from the summary of the following study material:

Malkiel: A random walk down Wallstreet

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