Fundamental Analysis For Dummies, 2nd Edition

Chapter 18

Avoiding Investment Blow-Ups with Fundamental Analysis

IN THIS CHAPTER

Finding out why ignoring fundamental analysis might expose you to investment losses

Exploring past speculative bubbles to see which fundamental data provided warnings

Understanding why poor investment decisions are so difficult to recover from

Considering a few of the financial shenanigans companies might play and how to spot them

In many sports, simply not making mistakes can be the best way to win. In tennis, for instance, blunders you make yourself are called unforced errors. Too many unforced errors usually give your opponents an easy victory, even if they’re not all that good.

Reducing the number of errors you make is also important in investing. As you’ll discover in this chapter, making too many unforced errors in picking the wrong investments can sink your returns. Fundamental analysis, while not perfect, can be a vital tool in allowing you to avoid at least some colossal disasters.

Making big mistakes in investing can dig you into a hole that’s extremely difficult, if not impossible, to climb out of in a timely fashion. If fundamental analysis prevents you from making just one blunder, it’s well worth your time.

Part of the process of avoiding mistakes is steering clear of companies whose fundamentals aren’t sound for various reasons. Sometimes you might not know for sure a company is about to implode. But fundamental analysis can give you the tools that may signal to you, at least, something ...