There are two types of analysis investors use. But, which is better than the other? Which analysis clearly beats the other in terms of consistency and growth? You will see the answer in a while.
In fundamental analysis, you will look at a company’s fundamentals. And in technical analysis, you will look at the performance in charts. But there is another important difference.
The former assumes that the market is not rational in short-term while the second assumes the exact opposite.
For fundamental investors, the board decisions and financial statements are of utmost importance. But for technical investors, the chart is God.
Fundamental investors take plenty of time to arrive at an intrinsic value while technical investors take decisions in seconds. (There are plenty of tools for technical investors that gives a buy or sell call in seconds.) Fundamental investors invest for years while technical investors may buy and sell in of days or hours.
Which is better? Many successful investors suggest a combination of both for a reason…
A company may be sound operationally. It may have an excellent board and may be performing well. But if public sentiment is not with the company, the share price may not appreciate enough. The opposite is also true. Hence, one cannot fully rely on fundamental analysis without looking at the sentiment angle.
Technical analysis, on the other hand, takes sentiment into account (after all chart is a reflection of sentiments). But technical analysis cares least about the future potential of a company.
A company whose operations are good and has investor sentiment with it will be a clear winner. This simple logic should answer the primary question. A balance of fundamental and technical analysis is your best bet. What balance, well you will know from your experience.
Let me know your views on which analysis is better.