What is fundamental analysis?
 

Fundamental analysis is often defined as an evaluation of the intrinsic value of instruments and companies, or «real» value. You thus analyze the factors that may affect the future price of an instrument/company that is not yet included in the pricing. A simple explanation of fundamental values is explained in the beginner section here. Fundamental analysis looks at information regarding industry/sector, key figures, macro data, management, etc.

 

Fundamental values

When you are going to do a fundamental analysis of a company or instrument, you often have a number of tools, criteria, and techniques that can be used to assess the "fundamental values".

Fundamental values in a company are often assessed on the basis of values such as profit, turnover, EPS, forecast growth, profit margins, etc.

You can also have fundamental values in other instruments such as gold/silver, crypto, real estate, options, commodities, currencies, etc. You then look for the underlying value behind these instruments.

 

For an option, such values may, for example, be that it is ITM (In the money). For crypto/blockchain, it may be the underlying value of the technology or application. For property, there may be market value, future growth potential, rental income, etc.

 

As you can see, there are many opportunities, as a fundamental investor you look for the underlying values behind an instrument or company. You can then analyze the values in relation to what the market prices them at today to see if the values really should have been priced higher than what the market has decided.

With the help of fundamental analysis, you can look for "underpriced" instruments and companies to invest capital for a longer period of time. You have then made up your mind that the company's or instrument's actual value is/should be higher than what the market considers it to be today. You can then imagine that you can buy the company/instrument on a "sale" in relation to what you think the company "should" be worth with today's fundamental values in mind, ie that you have found a good buying opportunity.

But remember! The market is in most cases right, you should therefore be very thorough in your analysis before concluding that the market has mispriced the fundamental values of an instrument.

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