Fundamentals

Definition

Fundamentals refer to the basic qualitative and quantitative information that affects the financial or economic condition of a company, security, or currency, and its subsequent financial valuation. Qualitative information includes elements that cannot be directly measured, such as management experience, while quantitative analysis uses mathematics and statistics to understand assets and predict their changes.

Origin

The concept of fundamental analysis originated in the early 20th century and matured with the development of modern financial markets. In the 1920s, as the securities market expanded, investors began to focus on analyzing company financial statements. In 1934, Benjamin Graham and David Dodd systematized the theory of fundamental analysis in their book "Security Analysis."

Categories and Features

Fundamental analysis can be divided into macroeconomic analysis and microeconomic analysis. Macroeconomic analysis focuses on national economic indicators such as GDP, inflation rate, and unemployment rate. Microeconomic analysis concentrates on individual company financial statements, management quality, and market competitiveness. The advantage of fundamental analysis is that it provides a long-term investment perspective, but its disadvantage is that it may not reflect short-term market fluctuations.

Case Studies

A typical case is Apple Inc. Investors analyze its financial statements, product innovation capability, and market share to assess its long-term investment value. Another example is Tesla, Inc., where investors evaluate the growth potential of its electric vehicle market and the company's financial health to decide on investment.

Common Issues

Common issues investors face when applying fundamental analysis include how to accurately assess qualitative factors such as management capability and how to deal with short-term market fluctuations affecting long-term fundamental analysis. A common misconception is that fundamental analysis can precisely predict market trends, whereas it is more suitable for long-term investment decisions.