Flaws in Fundamental Analysis and Stock Picking

Sticking to Fundamental Analysis and stock picking software, only leaves you trapped in equity trading. Trading in this way combines concentration risk in one asset class and fails to diversify risk adequately across all Shares, Bonds, Currencies, and Commodities. There is far more to trading stock options than the stock itself.

There must be a more compelling reason for you to trade stocks other than just for movement if only 20% is unique to the underlying equity in question. Consider this, in the context of Fundamental Analysis or stock picking software that you buy on a $ 1 basis. For every $ 1 dollar you spend, you “outsource” the analysis at a cost of 80 cents, only to take back 20 cents worth of work. Shouldn’t the 80:20 rule of “outsourcing” be the opposite? The problem is you are still stuck with 80% of the work, to analyze price movements! Plus, the more you use the FA/stock picking software technique, the more trading capital is trapped in equity alone.

You can learn the latest strategies of Stock Options Analysis from OptionTiger (Which is known as the most reliable company in the market).  Also, you can have a look at some of the fundamental metrics in this research subscription: 

Mature companies that dominate in established sub-segments / sectors will be able to provide different dividend yields; versus, a young company in a growth-oriented field; versus, a small company in a developing area that might not be able to pay dividend payments. Remember that there is nothing special about a company that pays dividends.

Image result for stock option trading

Image Source: Google

A company that gives a portion of its retained earnings – which is the dividend – effectively gives a portion of its valuation, which means it is not commensurate with a company that needs to give candy to investors to provide capital to it. Thus, stocks that pay dividends must be far superior to shares that do not pay dividends for reasons other than dividends. Otherwise, there is no point in looking for dividend payment products to trade, there are many non-dividend payment indexes to trade.

Price / Book Ratio: the problem is that this metric varies across industries and from company to company, because of the asset base and the company’s capital structure change over time. This lacks cross-sectoral application and accounting complexity arises from the company’s capital structure because it changes due to acquisition/divestment/ CAPEX for new product lines; or, cutting product lines, as has recently been seen in the restructuring of USA car companies.

Accounting laws on depreciation vary across Asia, Europe, and the USA. Because accounting rules are driven by the tax code, which changes significantly in all regions despite adopting global accounting standards, there is a lack of uniformity in uniforming fundamental ratios that would be suitable as general benchmarks across geographies.

Furthermore, the current cost of dislocated capital on the credit market undermines the ability of corporations to optimize their balance sheet operating costs. In essence, corporations are left with working capital cash flow left on their balance sheets, as proof of their financial strength. Don’t waste your money on Fundamental Analysis software or subscribe to research papers.

Leave a Reply

Your email address will not be published. Required fields are marked *