Stock Valuation using Fundamental Analysis (Part 1)

What is a stock/share?

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. (Investopedia)

There are 2 types of stocks, common and preferred. For the whole series, I will only be taking common stocks, which are those that are traded on the stock exchange.

I will be writing with relevance to the Singapore market, and a bit on the US market.

For a company to have its shares traded on the stock market, it has to meet the requirements set by SGX to qualify for a listing. For the SGX, there are 2 boards, the SGX mainboard and SGX Sesdaq. The mainboard is for bigger companies and the SesDaq is for relatively smaller companies.

What is Investing??

Investing must be construed a continuing endeavour aimed at the preservation and creation of wealth, bearing in mind all necessary and incumbent risks over a period of time for appropriate returns.

In short, invest with full knowing of what the hell you are doing!!

For stock investing, there are mainly 2 schools of thought, Fundamental Analysis and Technical Analysis.

For FA, it is more on the reading and interpretation of the company's annual report, to relate the company's prospects in relation to the industry and in turn the industry in relation to the economy as well. This is done to find out the "instrinsic value" of the company in relation to its current market price. And of course, Benjamin Graham, the father of Value Investing, is considered the founder of FA. For more information, read his book "The Intelligent Investor"

For TA, the foundation lies the the principles of the "Dow Theory" and that the stock market moves in trends and cycles. Knowledge on volumes and chart reading (ie Japanese candlesticks) can provide information on future market prices. TA is more concerned with the study of day to day charts and volume compared to FA.

However, FA & TA have both its strengths and weaknesses, and I believe that each other's strengths will complement the shortcomings of their analysis. For me, FA will tell me what stocks to buy and TA will tell me when to buy and sell them.

Here is a table to recap what I have said so far (just in case you don't understand)