04-24-2009, 11:45 AM
amins Wrote:Well, since you said you enjoyed talking about this stuff.... /opens can of worms.
Mind going through the 'fundamentals', what they are and how they are used to figure a companies growth/target prices?
Example:
I know for charting, I draw my trend lines, then support/resistance to get the bigger picture or direction of the trades. I then use Patterns (consildation, continuation, candlesticks, etc) and indicators (macd, stocastics, moving averages, bollinger bands, etc etc) to either support (in which case confirming the trend and buying) or hold (waiting for a breakout/confirmation).
How are fundamentals used, in this context, seeing as how this is the way most large firms base thier investment & risk management when it comes to clientel portfolio's?
The simplest and most basic measure is earnings. Of course you analyze a companies balance sheet to compare it to competitors in terms of captial structure (how much debt vs equity they use to finance their assets) as well as looking at cash flow management -- but earnings is the key once you filter out companies that know how to finance their assets safely and manage their cash. Once you filter out those companies, you look at future earnings and predictability of those earnings. That's the guess work of fundamentals, the rest is simply math and the time value of money. Obviously there are companies like Coke that are more predictable, and companies like VmWare that are less predictable.
Back to earnings and the time value of money. Once you've estimated future earnings, you take those earnings and discount them to their present value. That process simply involves computing all future cash flows for a certain period of time, and discounting them to todays dollars based on some discount rate. That discount rate is the rate of return you require to make an investment of this type of risk. For example, you can invest in a 10 year Treasury and get 2.96 percent, just a little over inflation. This risk level is low (the US governement will probably not default any time soon) whereas investing in GM is more risky and hence you would have gotten 12% on GM bonds in the recent past. The more risk, the higher the return demanded by investors.
more later, if this is the type of info you wanted, let me know
"Hamilton is really a Colossus to the anti republican party. Without numbers he is an host within himself. They have got themselves into a defile where they might be finished but too much security on the republican part will give time to his talents and indefatigableness to extricate them. We have had only middling performances to oppose to him. In truth when he comes forward there is nobody but yourself who can meet him. His adversaries having begun the attack he has the advantage of answering them and remains unanswered himself. For God's sake take up your pen and give a fundamental reply to Curtius and Camillas" - Thomas Jefferson to James Madison