What It Is: How It Works/Example: Fundamental analysis observes
numerous elements that affect stock prices such as sales, price
to earnings (P/E) ratio, profits, earnings per share (EPS), as
well as macroeconomic and industry specific factors. Fundamental
analysts use either top-down or bottom-up methods of analysis,
or sometimes both. A top-down analysis might function in the
following manner: 1) The entire market is analyzed, including
global and macroeconomic indicators 2) The specific sector, such
as Technology 3) The industry, for example semiconductor
manufacturers 4) The specific stock, for example company ABC
Conversely, a bottom-up analysis starts by investigating
specific stocks first. The fundamental analyst observes trends,
market and price movements, company financial statements,
interest rates, return on equity (ROE), and numerous other
indicators with one goal in mind: buying or selling stocks that
will provide a high return on investment (ROI) Why It Matters:
Fundamental analysis, like technic