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Seeking 10-Baggers | Fundamental or Technical: How to Choose?
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Strong Technicals and Solid Fundamentals Are The Foundation of 10-Baggers
In the field of investment, when categorized by investment style, there are generally two types: fundamental investment and technical investment. In my view, these two investment styles are not mutually exclusive, nor is there a definitive "better" one. In stock market investing, finding an investment style that suits you should be given high priority, even the first priority.
Fundamental analysis is an investment method that assesses the intrinsic value of a stock by analyzing factors such as the company's financial condition, industry prospects, market environment, and management team. Fundamental investors attempt to determine whether a stock is undervalued or overvalued by conducting in-depth research on the company's fundamentals and make investment decisions accordingly.
Technical analysis is an investment method that predicts future price movements by analyzing historical data of stock prices and trading volumes. Technical investors believe that stock price movements follow certain patterns, and by studying these patterns, they can identify the best times to buy and sell stocks.
I believe that readers with some practical trading experience have a certain understanding of both fundamental and technical analysis, so I won't elaborate further. Below is a table that provides a simple comparison of the two investment styles for readers to discuss.
1.Comparison between Fundamental Analysis and Technical Analysis
Aspect | Fundamental Analysis | Technical Analysis |
---|---|---|
Analysis Focus | Company's financial status, industry prospects, macroeconomic environment, corporate governance, and other fundamental factors | Stock price trends, trading volume, technical indicators, and other technical factors |
Investment Concept | By thoroughly researching the company's fundamentals, identify undervalued quality stocks, and hold them long-term to gain value-added returns | By analyzing historical data of stock prices and trading volumes, capture short-term trading opportunities by understanding market trends |
Analysis Methods | Financial analysis, industry analysis, macroeconomic analysis, corporate governance analysis, etc. | Trend analysis, pattern analysis, trading volume analysis, technical indicator analysis, etc. |
Time Horizon | Generally medium to long-term investment, focusing on long-term value investment | Generally short-term investment, focusing on short-term trading opportunities |
Risk Control | By thoroughly researching the company's fundamentals, assess investment risks and avoid blind follow-up | Use technical indicators and stop-loss strategies to control risks, but have relatively weak response to market emergencies |
Suitable Group | Suitable for investors who are willing to conduct in-depth research and hold stocks for a long time | Suitable for investors who are good at technical analysis and pursue short-term returns |
Advantages | Can discover undervalued quality stocks, achieve higher investment returns; good risk control; suitable for long-term investment | Can quickly make buy and sell decisions, grasp market short-term trends; more trading opportunities; suitable for short-term trading |
Disadvantages | Complex analysis, requires a lot of time and effort; slow market response; higher uncertainty | Strong subjectivity, questionable market efficiency; lack of fundamental support; weaker response to market emergencies |
2.My Perspective on Fundamental and Technical Analysis: How to Choose?
As previously mentioned, the key is to align the two investment styles with one's own practical situation.
Fundamental analysis requires a deep understanding of industries, companies, and financial statements, and often involves holding stocks for a long time. Although this style generally entails less volatility and risk overall, investors might have to endure periods where stock prices stagnate or even decline. There's also the possibility that after holding for a long time, the stock's value doesn't meet expectations, resulting in wasted time value.
Therefore, fundamental analysis is more suitable for those with a solid financial foundation, comprehensive knowledge of macro and microeconomics, and ideally, experience in the industry chain and related businesses. Financially, it suits those not pursuing short-term gains but viewing stock purchases as equity investments.
Technical analysis, on the other hand, is more flexible, as it is based on stock price trends and volume. This demands a high level of "chart reading" and trading skills from investors. The advantage is quick capital turnover, greater flexibility, and it aligns well with the preferences of most new market entrants, which is why novice traders tend to trade frequently, chasing rises and selling on dips.
However, since this style does not focus on fundamental quality, investors also bear significant volatility and risk. Although the requirements for fundamentals are low, there is a high demand for dynamic market analysis, and a lot of time is needed each day for monitoring and reviewing the market. This means that unless one is a professional trader, this style is not easy to manage.
Is there a trading style that doesn't require in-depth fundamental research and doesn't necessitate constant monitoring? The answer is yes, trend trading is a good option.
Based on my experience, this is a trading style that, on the basis of understanding the fundamentals of stocks, selects technically strong stock trends to avoid fundamental flaws and improve trading efficiency.
In simple terms, I have certain fundamental requirements for my trading targets, or "stock pool," but these requirements do not reach the depth of fundamental analysis; they just need to be "vaguely correct." Because, in my view, in this era of information equality, most investors have similar information. Apart from a few insider messages, I just need to select what I consider "good stocks" from this basis and add them to my watchlist.
Then I trade at the right time. In trend trading, there are requirements for the efficiency of capital transactions. The ideal state is to "buy and then see the stock start to rise," and then "exit at the peak and look for the next opportunity." In fact, this is very difficult. But that's okay, and we just need to get as close as possible.
As for how to achieve "vague correctness" in stock selection and how to find the "best buying point," I will elaborate in subsequent articles of this series, so stay tuned.
Note: We are thrilled that you've made it to the end of this article. Our "10-baggers" series is scheduled to run for eight installments, with a new edition coming out every week. The primary purpose of this series is to share experiences and facilitate discussions among investors.
Upcoming Preview: The Fundamental and Technical Methods and Parameters I Commonly Use
Disclaimer: The articles in this series are original works by the sahm team, primarily intended to share investment experiences for the exchange among investors. If individual stocks are mentioned within the articles, they serve solely as examples for discussion and should not be considered as investment recommendations.