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Wrapping it all up

Congratulations, you’ve made it to the end of this course! Hopefully you feel like you’ve learned a lot! Just to make sure you get the most out of this course, I’d like to quickly wrap up what we’ve learned today and point out the most important points.

At the beginning of this course, we’ve learned that fundamental analysis can help us to get an idea of the fair value of an asset, to determine whether it is currently undervalued or overvalued. This is because any asset can be overvalued or undervalued at any particular moment in time, sometimes giving us great opportunities to buy or to sell. Using top-down fundamental analysis, we want to try to get the bigger picture of a certain market or industry. Through using bottom-up fundamental analysis, we try to find the greatest stories for us to invest in. However, we have to make sure that the information which we base our study on is reliable and factual, so that we draw reliable conclusions! Once we’ve found these good opportunities, we simply have to wait patiently until the asset that we are interested in trades at the right price. This goes for both finding the right price to buy and the right price to sell!

When we delved a bit deeper into equity investing, we’ve learned that equity fundamentals are driven by the concept of earnings. To analyze these stocks, we can often use the price/earnings ratio and the price/book ratio to quickly get a sense of how interesting a company is. It can be helpful to pay attention to the overall health of the economy, but there is no right or wrong when having to choose between growth or value stocks. Value investors often need to be very patient for capital gains, when the other market participants don’t recognize the fair value of the asset. Growth assets can go up dramatically in price, but growth investors have to be able to endure wild gyrations in price should recessions occur. At the end of the day, this is mostly a question of your personal preference.

If you’re considering investing in venture capital (often companies without earnings), the best way for us to value these assets is by looking at where the insiders are long. We can’t use earnings because they don’t have earnings! Here, we can use things like shares for debt, options to directors and open market activities to try and get an idea of value.

Besides analyzing equity investments, we also looked at how we can analyze non-equity investments such as commodities or certain cryptocurrencies. When trying to value these assets, it often comes down to supply and demand dynamics. The price is really a function of how scarce the asset is, and how much the market wants the asset. If you happen to know that there will be a (sudden) change in either the demand for or the supply of an asset, then you better start doing your research!

Lastly, we have to keep in mind that knowing exactly what the structure of your investment looks like is a very important aspect in understanding the fundamental value of your asset! We have to pay a lot of attention to the number of units or the number of shares outstanding!

That’s it for now! In our next course we will add to our investing toolkit by exploring the wonderful world of technical analysis. If we can master our ability to find ideas that make sense fundamentally and then combine this with the ability to perform technical analysis, that will help us a lot in our trading or investing endeavors. We hope to see you there! :)

The following sources have been used in writing the Fundamental Analysis 101 course:

  • Wiley. (2018). Level 1 CFA Study Guide. Volume 2: Economics. John Wiley & Sons, Inc.
  • Wiley. (2018). Level 1 CFA Study Guide. Volume 4: Corporate finance, portfolio management, & equity. John Wiley & Sons, Inc.
  • The Rational Investor’s School for Trader Development. (2018).Level 1: An Introduction to Capital Markets and Investment Planning.  If you are really serious about becoming an awesome trader or investor, we can highly recommend you to take a look at https://www.therationalinvestor.com/!
  • https://en.wikipedia.org/wiki/Mr._Market
  • https://www.investopedia.com/articles/professionals/072415/value-or-growth-stocks-which-best.asp
  • https://www.investopedia.com/terms/f/fundamentalanalysis.asp
  • https://www.investopedia.com/terms/p/price-to-bookratio.asp
  • https://www.investopedia.com/terms/f/fundamentalanalysis.asp
  • https://www.investopedia.com/terms/p/price-to-bookratio.asp
  • https://www.investopedia.com/terms/s/supplyshock.asp
  • https://www.investopedia.com/terms/v/venturecapital.asp
  • https://www.investopedia.com/university/economics/economics3.asp

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