Online Investing on the Australian Sharemarket, 5th Edition

Chapter 8Benefiting from online fundamental analysis

In this chapter I describe fundamental analysis, which is a long-term approach to share investing. It's based on the principle that companies with sound foundations should do well in the long run. I'll discuss how to obtain the fundamentals from the web and how to interpret and use them to improve your share investing profitability.

Using fundamental analysis

You use fundamental analysis when investigating shares as a medium- or long-term investment. As a shareholder you're actually a part-owner of the business, and before you invest in any business for the longer term you should ensure the business is built on a sound, solid base. This is where fundamental analysis helps, as it enables you to understand the basics of a business and gauge its longer term prospects. There's little point in using fundamental analysis to select shares you want to trade in the short term, and it doesn't help you to choose the best time to enter or exit a trade. For these types of shares and trades, you need to use technical analysis, which is discussed in the next chapter.

Obtaining fundamental data

Imagine you are thinking of purchasing a business. You would no doubt conduct an on-site investigation — talking to the management, customers, staff and suppliers, examining the books and financial records, checking projected sales and earnings, and so on. From this investigation you could form a very good impression of how sound the foundations ...