1.4. Fundamental Analysis

We start this chapter with explaining the difference between speculators and investors.

In our opinion (and most other prominent investors), this difference is important to explain.

  1. A speculator is someone who is primarily focused on market prices and tries to predict future price movements, based on what has happened in the past;
  2. An investor is someone who is primarily focused on the fundamentals of real value-adding businesses and who sees him/herself truly as an owner (shareholder) of the business and its assets on the balance sheet;

This is exactly why there are two different types of market analysis:

  1. Fundamental analysis, which is most practiced by so-called “value-investors”;
  2. Technical analysis, which is most practiced by so-called “speculators” or “daytraders”;
Figure 1: Fundamental Analysis / Source: ChatGPT

We will now go into detail about fundamental analysis, and how value-investors use these analysis to investigate real businesses that add real value in real life.

Fundamental analysis on index funds

The major questions that an investor in index funds ask him/herself are as follows:

  1. What companies are included in this index fund exactly?;
  2. How are these companies weighted in this index fund?;
  3. In which countries are these companies headquartered?;
  4. In which countries do these companies operate?;
  5. In which market segments do these companies operate?;
  6. What are the costs of investing in this index fund?;
  7. What is the past performance of this index fund?;
  8. What are the risks of this index fund?;

More detailed information about index funds can be found in chapter 2.1. Index Funds.

Fundamental analysis on stocks

The major questions that a true value-investor asks him/herself are as follows:

  1. What is the precise name of this company?;
  2. What does this company do exactly in their day-to-day operations?;
  3. What products or services does this company sell exactly?;
  4. In which market segments is this company currently active?;
  5. In which market segments does this company try to expand?;
  6. Do I truly understand this company and its daily operations?;
  7. Who is the creator of this company exactly?;
  8. In what year was this company founded exactly?;
  9. How has this company changed over all these years in operation?;
  10. Who is the Chief Executive Officer (boss) of this company?;
  11. Is the CEO a visionary, capable, honest and trustworthy?;
  12. Does the CEO own shares in this company?;
  13. What has the CEO achieved with this company?;
  14. Who is in the management of this company?;
  15. Is the management visionary, capable, honest and trustworthy?;
  16. Does the management own shares of this company?;
  17. What has the management achieved with this company?;
  18. Does this company have a proven track record of earnings?;
  19. Does this company have a proven track record of profits?;
  20. Does this company have a proven track record of share buybacks?;
  21. Does this company have a lot of debts?;
  22. How many shares does this company have outstanding?;
  23. What is the current price of the shares of this company?;
  24. What is the current market cap (shares x price) of this company?;
  25. Where can I buy shares of this company exactly?;

More detailed information about stocks can be found in chapter 2.2. Stocks.

Fundamental analysis on cryptocurrencies

The major questions that an investor in cryptocurrencies asks him/herself are as follows:

  1. What is the precise name of this cryptocurrency exactly?;
  2. What does this cryptocurrency offer exactly?;
  3. Does this cryptocurrency run on its own blockchain?;
  4. Does this cryptocurrency run on another blockchain?;
  5. Who was the creator of this cryptocurrency and/or blockchain?;
  6. In what year was this cryptocurrency and/or blockchain founded?;
  7. What are the possibilities on the blockchain of this cryptocurrency?;

More information about cryptocurrencies can be found in chapter 2.4. Cryptocurrencies.

We will dive deeper into fundamental analysis in later blog articles and possibly give detailed examples for our favorite companies. These will be listed here later.

We highly recommend to read the following books on fundamental analysis:

  1. The Intelligent Investor by Benjamin Graham;
  2. Security Analysis by Benjamin Graham and David L. Dodd;
  3. The Warren Buffett Way by Robert Hagstrom;
  4. Common Stocks and Uncommon Profits by Philip A. Fisher;
  5. 100 Baggers by Christopher Mayer.