It seems that everyone who are about to participate in “Stock
Mind” game have some sort of questions in their mind, but at my point of view I
found a similar question among every one which is how to go about it? If you too have the same question prevailing in
your mind then continue reading. This blog post will give you some suggestion
as how to plan and execute an effective short term investment strategy for our
ten day stock mind game.
Which approach am I supposed to use? - Fun or Tek
Which approach am I supposed to use? - Fun or Tek
Firstly, let’s decide which analysis better suits the game.
I know that everyone have read well and more about fundamental and technical
analysis which helps one to analyze a security and make investment decision
from our academics. I think its time to apply those methods in this game to
make some winning decisions. Fundamental analysis involves analysing the
characteristics of a company to estimate its intrinsic value whereas technical
analysis is all about studies of supply and demand in the market to determine
what direction/trend will continue in the future. Contrary to the fundamental
analysis, technical analysis doesn’t even care about the value of the company. Both
are very broad topics so you’ll need to dig deeper into the concepts to
understand it. Lets get into the details of how these two approaches differ
to find which suits us.
In Fundamental analysis it tries to determine the intrinsic
value of company by looking at its balance sheets, cash flow statements and
income statements. Its fairly very easy to take decisions in this approach. If you
ascertain and invest in a company’s stock which trades below its intrinsic
value then it a good investment. However, it takes a long time for a company’s
intrinsic value to get reflected in the market so till then no gain will be
realised. They call this as value investing and assume that the short-term market
is wrong and believe it’ll correct itself in long run.
Some critics say that Technical analysis as a form of black
magic. Don’t get surprised but recently it has got some credibility like
fundamental analysis. Technical analysis argues that the past trading
information is already reflected in the price of the stock and, it is useless
to value an undervalued stock/security. Here in technical analysis it tries to
determine the trend instead of the intrinsic value by looking at the historical
charts, indicators and oscillators. It believes that prices of a stock moves in
trend and history tend to repeat itself. For a short term investment decision
this analysis suits best.
I would suggest everyone to concentrate more on Technical analysis rather than Fundamental analysis to grow your portfolio's value within ten days. Tomorrow I’ll give more information about the strategies while investing and how am I going to use technical analysis to take investment decisions. Guys if you are so curious go back and take out your Security analysis and portfolio management books to have a glance on technical analysis. See you guys tomorrow.