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Fundamental Analysis
This "Module 3: Fundamental Analysis" by Zerodha provides a comprehensive guide to fundamental analysis (FA) for long-term investors in the stock market. It emphasizes that FA is a holistic approach to studying a business, crucial for separating wealth-creating companies from those that destroy wealth over the long term. The module highlights that successful investing requires understanding a business from various perspectives, focusing on underlying business performance rather than short-term stock price fluctuations.
The module addresses the common misconception that only finance professionals can perform fundamental analysis, asserting that basic skills like understanding financial statements, comprehending businesses within their industry context, and elementary arithmetic are sufficient. It advocates for the coexistence of both Technical Analysis (TA) and Fundamental Analysis in a market strategy, proposing a "Core Satellite Strategy" where a majority of capital is allocated to long-term, fundamentally strong investments (core portfolio), and a smaller portion is used for active short-term trading based on TA (satellite portfolio). The tools required for FA are presented as basic and mostly free, including annual reports, industry data, news, and MS Excel.
A significant portion of the module focuses on the Mindset of an Investor, distinguishing between speculators, traders, and investors. Through a scenario involving an RBI monetary policy announcement, it illustrates how each type of market participant reacts differently based on their time horizon and approach to risk. The investor (Girish in the example) is characterized by a long-term perspective, an understanding of market noise, and a willingness to stay invested or even buy more during adverse short-term movements. The module stresses the "compounding effect," where money grows exponentially faster over longer investment periods, making time a crucial luxury for investors. It asserts that investing in a good company with "investible grade attributes" will always yield results, provided the investor can tolerate short-term volatility.
The module addresses the common misconception that only finance professionals can perform fundamental analysis, asserting that basic skills like understanding financial statements, comprehending businesses within their industry context, and elementary arithmetic are sufficient. It advocates for the coexistence of both Technical Analysis (TA) and Fundamental Analysis in a market strategy, proposing a "Core Satellite Strategy" where a majority of capital is allocated to long-term, fundamentally strong investments (core portfolio), and a smaller portion is used for active short-term trading based on TA (satellite portfolio). The tools required for FA are presented as basic and mostly free, including annual reports, industry data, news, and MS Excel.
A significant portion of the module focuses on the Mindset of an Investor, distinguishing between speculators, traders, and investors. Through a scenario involving an RBI monetary policy announcement, it illustrates how each type of market participant reacts differently based on their time horizon and approach to risk. The investor (Girish in the example) is characterized by a long-term perspective, an understanding of market noise, and a willingness to stay invested or even buy more during adverse short-term movements. The module stresses the "compounding effect," where money grows exponentially faster over longer investment periods, making time a crucial luxury for investors. It asserts that investing in a good company with "investible grade attributes" will always yield results, provided the investor can tolerate short-term volatility.
- GenresFinance
172 pages, ebook
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About the author
Zerodha Varsity
15 books19 followersVarsity is an extensive and in-depth collection of stock market and financial lessons created by Karthik Rangappa at Zerodha. It is openly accessible to everyone and is one of the largest financial education resources on the web.
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Displaying 1 - 2 of 2 reviews
November 26, 2022
Pretty detailed on Fundamental analysis at times felt like an information dump with an insane number of formulas, but nonetheless necessary to understand important aspects while choosing stocks for long-term compounding gains.
December 27, 2021
Simple as it can get
Displaying 1 - 2 of 2 reviews