Good fundamental values
 

It is important that you as a fundamental investor make procedures and checklists for what you think are good fundamental values for the relevant instruments you are considering. Specializing in a sector or type of instrument you are looking for may also be wise, to sharpen the competence behind your assessments of the underlying values in the instrument.

Fundamental thoughts to consider 

  • Is it a good business model?

  • Can values increase in the future?

  • Does the company have existing values/capital?

  • Are there increasing earnings behind the fundamentals?

  • Is the business model scalable?

  • How secure are the values in the future?

  • Is it an emerging sector?  

  • Do you have a high return on invested capital?

  • Is there solid management behind the operation?

  • Have those who run the company/insiders a large stake in the company?

How it can be used

The next step is to find out if you really understand what drives the instrument's market return on the stock exchange through fundamental values. When you are going to assess the values and what influences them, you should quickly form an opinion on what you do not understand behind the instrument in question and what you have a good understanding of.

 

This reduces the chance that you end up in the danger of getting a cognitive bias towards the instrument where you are just looking for the good fundamental sides. Such a bias can prevent you from looking for the potential dangers and pitfalls with investing in the instrument/company, also called "confirmation bias".

As a rule, the market is "always" right, so it is important to find out why the market does not agree with you that the company is cheap in relation to its fundamental values. You should therefore try to illuminate all the fundamental aspects of the instrument. Both positive and negative.

 

Of course, there are cases where the market has not yet been priced into the instrument's values or increasing future growth of values. These cases are the ones you are looking for as a fundamental investor using fundamental analysis. You must therefore evaluate values such as these mentioned above, and learn how to use specific factors when screening/looking for good fundamental instruments/companies. As a fundamental investor, you are looking for good undervalued "quality companies".

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