Fundamental Analysis is looking at the “now”. By the “now” I mean looking at the basic information of what an investment is doing today and deciding if based on that information it is the type of investment you would be interested in buying or starting.
In a previous blog, I introduced you to the Investment Pyramid, you will notice the white cross on image. The cross represents the glue (analysis) that holds the investments together. This analysis helps you to make decisions about your investment. It also provides information which aids in making those decisions.
We teach 4 category investing – Business, Property, Shares and Cash – and within each category fundamental analysis is different. So, let’s look at each category and what we would be looking for within those categories.
Business – There are many different types of businesses, in our training courses, year one business is all about starting a simple business that can generate income for investing. Most of our clients start with
· Ebay – where they are looking at what they have around their homes that is no longer wanted and could be sold online. They are looking at the “now”. They aren’t considering if they can make sales in the next year or two. There immediate plan is to generate cash immediately. Only when they have sold everything possible from their homes do they start thinking about future sales. Their analysis is based on what can I do now to make some money.
· Amazon Dropshipping – is popular as clients can instantly stock an online shop once they have found a supplier they like and can work with. The fundamental analysis is simple the supplier has a product that the customer wants to sell but doesn’t want to hold supplies or worry about dispatching orders. The simple “now” analysis is can I stock a shop and is it a product I would sell? Once those questions are answered then a dropshipping account is opened, an amazon shop is opened and trading starts.
· Network Marketing – The fundamental analysis with Network Marketing Business is can my friends or colleagues do this? Can I sell the products? Do I trust this company? Once those questions are answered
· Youtube – learning how to monetise a Youtube account and attracting clients is where the fundamental analysis comes in.
· For clients who wish to start a more traditional business we tend to work with them on a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis along with the basics of starting a business from suppliers to attracting clients. Again, fundamental analysis is dealing with the “now” and the client’s expectations.
The fundamental analysis is not complicated it is simply finding some very basic information based on the here and now and using it to start a business.
Property – with this category the fundamental analysis is based on the client’s interest in property, for example, what type of property do they have an interest in and how much cash do they have available? Is the type of property they want suitable to the type of person they are? Do they have the finance and the time to work on it or do they need an agent? What is the rental demand for the type of property they are looking at? Will the rents cover any mortgage costs and will there be any profit from the investment? Again they are basic questions based on the here and now.
With clients who want to build a property portfolio then there is more analysis required to determine sustainability.
Paper – covers many different types of investing such as shares, bonds and guilts. For our first year clients, we focus on the share market with simple strategies for starting a share portfolio. The fundamental analysis is based on 3 strategies we teach within the first year. Dividend Investing, Price Cost Averaging and the Compounding Effect. The fundamental analysis is based on ensuring the share works within the strategies being used. This involves looking at some charts; overlaying RSI (Resistance & Support Indicators) tool. Checking the EPS and P/E and ensuring they fit within the parameters we have set. Provided they meet the criteria then the share can safely be purchased. The Fundamental Analysis is ensuring the information fits within the criteria. It is dealing with the “now” information.
Cash – within this category we cover two types of investment
· Bullion – looking at gold and silver prices and using them as a hedge (protection) against the other investments. Holding around 10 – 15% of the total wealth as Bullion.
· Peer-2-Peer Lending – using spare cash to generate additional income through lending the money to other people through Peer-2-Peer platforms. The fundamental analysis involved here is looking at the safety of the investment, the return and the stability of the company.
As you can see, from the examples above, Fundamental Analysis, is simply looking at very basic information, based on what is available today, to ensure it fits within the criteria we set to start an investment portfolio.