There is always comparison between Fundamental Analysis (FA) and Technical Anaylsis (TA). There is enough supporters at each side of the house, claiming FA/TA is more superior than the other. So which is better? FA or TA?
The reason why market participants require FA or TA is because the flow of information is not perfect. This is especially so for the retail investors. Let’s imagine, if you are one of the first few people to know about something, you are able to act faster than most people. You do not need any FA or TA in this case. Hence, as a retail investor, whether you use FA or TA, you are indirectly trying to get this “information” as fast as possible. By getting this “information” faster than most market participants, you will earn a decent profit. In other words, the EARLIER and MORE RELIABLE information you get, the greater your profits. But then again, you can never do it better than the people higher up[ in the information chain.
The 2 considerations we will discuss are TIME and RELIABILITY. Let’s evaluate the pros and cons of FA and TA.
TIME – entry
FA allows you to buy EARLY (sometimes too early). When you spot a fundamentally good stock, you actually prefer to buy it when there is no hype or interest. Both volume and volatility (price fluctuations) would be low. This means that you would have got in earlier than most people, and wait for buying interest to come in when more people recognise the potential of the stock. You would be a very happy man, getting a profit in multiples of your capital invested. But there are 3 other scenarios that can happen. One, you bought too early, and you have to wait for very long, say 5 years, to see the results. Second, you bought early and the stock price went down, and stay down for a long time, proving you are wrong. Third, you bought early and the stock price went down. You recognised your mistake and sold off, only to regret when the stock rebound and reach higher heights. Read more…