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Is Fundamental Analysis Still Useful ??

The eternal debate between the fundamental and technical analysts still continues and as the world markets churn out more events in favor and opposition of both studies, decision making has never been more data driven than it is today.

As the followers would state, nothing can beat the returns offered by a fundamentally sound company over a long period of time.Though the fundamentals take time to reflect in the price of the company,on an average the price of the scrip keeps moving northwards whilst the company continues to offer steady growth and profitable performance.

But that does not necessarily mean that investing in a fundamentally sound company always results in good returns.Yes over a period of time given good business conditions for the sector ,probability of better returns is amplified but while the theory has proved right in the last 2 decades , the next does not exactly looks that promising.

Today, in the chaotic environment we live in, a new scam is unearthed daily and every other company is involved in one or the other..not because lack of ethics, but because it has become impossible for the companies to operate fairly in this hostile environment. Absurd policies , taxes , bureaucracy all have evenly contributed to compromised operations of companies.

One day a company may have rock solid fundamentals with its books telling a completely different story the very next day.For example , ‘Satyam Computers’ promoted by Mr Ramalinga Raju was considered a blue chip fundamental company on the bourses until one very day Mr Raju decided to tell the truth.Internationally Enron Corp was a world known company and had won a lot of awards for its innovative business model and operations.The stock had grown multi fold with every fundamentalist going gaga over the future of the company.After the expose , the stock lost 99% of its value in a very short span of time.

The Business Environment for a sector can change very frequently with change in government policies.The story of telecom sector in India provides maximum evidence of the same.One year the sector is flavor of the season and the next everything turns sour.The same story goes with every other sector including mining , power , infrastructure , real estate ..all are prone to lose their shine with the changing government policies.

Still though the balance sheets , the earning ratios and statistics will always have an importance of their own..utmost importance in fact for they tell the true picture of the the company operations.In a bear cycle the fundamentally sound companies and bogus scrips crash alike but the good companies are the first one to recover.A host of macroeconomic aspects are to be taken into account while making investment decisions based on fundamental analysis which are bases on a lot of assumption which may not always turn out to be true.

Personally while ido use fundamental research to shortlist companies to trade and invest , taking investment decisions solely on the analysis is not possible.Thus taking a bit of help from Charts for finding low risk entries and exits for fundamentally sound companies is always a viable and profitable option.Also why use one when you can have the best of both worlds..


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