Fundamental Analysis versus Technical Analysis

Florin Cornel Dumiter () and Florin Marius Turcaș ()
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Florin Cornel Dumiter: Vasile Goldis Western University of Arad
Florin Marius Turcaș: Romanian Valuators Association

Chapter Chapter 2 in Technical Analysis Applications, 2023, pp 19-47 from Springer

Abstract: Abstract The main areas related to the capital market are represented by: the valuation of financial instruments, stock market theories, portfolio theory, and statistics. We consider it important to answer the question: “what should we know to invest in the capital market?ˮ We should know how to evaluate the company, to see if the market is under-, equi-, or over-evaluated. We will review the main approaches in valuation and show that the value of the issuer (the company as a whole) differs from its stock market capitalization (number of shares or stock price). The whole is not equal to the sum of its components. We will have to refine our financial analysis. The quotation undoubtedly depends on the results of the issuer. But what do we use from the multitude of balance sheet indicators, results, cash flow, rates, and scores? We will briefly present them and highlight their role. We should know how to read periodic reports, and audits, do short due diligence; practically, and make a complete and coherent analysis of the company. Portfolio theories would help us select the securities that best respond to the reward-risk dichotomy. We will see that they are closer to technical analysis than to other areas. Here, too, statistics is needed: we will present it, as much as is strictly necessary, including fractal theories (long tails). Behavioral analysis should also be mentioned. We will not insist on it, but we will specify that the herd effect occurs both in exuberant increases and in stock market crashes. And, no matter how irrational, we must live by following sentiment indicators. Finally, our analysis must consider the following questions: Is there a direct correlation between the company’s results and the stock market evolution? What does the correlation mean and how can we use it for portfolio selection? What are market multipliers? How can the discounts used in the valuation be explained? What about primes and synergies? What is market manipulation? How do we recognize important events on the chart and how do we relate to them? What are corrected charts? These are questions that we will show how to look for the answer to.

Keywords: Financial instruments; Capital market; Valuation; Portfolio Theories; Behavioral analysis (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-27416-9_2

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DOI: 10.1007/978-3-031-27416-9_2

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