Investing and trading have been around in various forms since money was invented, but for the purposes of this paper, I would like to look at narrower, goal specific definitions for these terms. Investing is commonly understood in the financial industry as, long term, 1 – 10 years. But trading is could constitute anything from milliseconds upwards. The goal of investing and trading is the same, to make money or to hedge risk. The question this paper would like to investigate are the merits for technical versus fundamental approaches.
Fundamental investing (FA)
Investopedia defines Fundamental investing as:
“A method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and company-specific factors (like financial condition and management).
The end goal of performing fundamental analysis is to produce a value that an investor can compare with the security's current price, with the aim of figuring out what sort of position to take with that security (under-priced = buy, overpriced = sell or short).
This method of security analysis is considered to be the opposite of technical analysis.”
(http://www.investopedia.com/terms/f/fundamentalanalysis.asp)
Technical Analysis (TA)
Investopedia defines Technical Analysis as:
“A method of evaluating securities by analysing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use cha...
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... dice are thrown or the wheel is spun. But over a large number of bets, the gains and losses average out to a result that can be predicted, even though the result of any particular bet cannot be predicted (Fig. 3 . 8 ).
The casino operators make sure the odds average out in their favour. That is why casino operators are so rich. The only chance you have of winning against them is to stake all your money on a few rolls of the dice or spins of the wheel.
It is the same with the universe. When the universe is big, as it is today, there are a very large number of rolls of the dice, and the results average out to something one can predict. That is why classical laws work for large systems. But when the universe is very small, as it was near in time to the big bang, there are only a small number of rolls of the dice, and the uncertainty principle is very important.”
In the course of writing this paper I learned about the way the human mind can be manipulated by very simple things, and when it is discovered it is often too late. There are smart gamblers who do win, but the majority don’t think and wind up spending incredible amounts of money.
The adrenaline-rushing feeling of gambling offers people the idea that opportunity lies within their hands. Unfortunately, there are far too many consequences to gambling to even begin to count. To win you must play, and to win big you must play big. As more gamblers can recall their losses rather than their winnings, gamblers are often dealt with poor hands and must play the risky game to stay alive. Even though gambling has so many faults, some still fall under its corruptions because of gambling’s deceiving fallacies.
Every asset has an intrinsic value that can be projected if cash flows, growth and risk are known.
The basic system of just about every casino is that of the tables (including Roulette, Blackjack and Craps) filling the center of the room with computerized machines (including slots and video poker) that don’t need much tending to surrounding the area. Also, in many casinos there is a second floor surrounding the perimeter of the building with balconies everywhere so the main floor is still the center of attention. This setup brings the eye of casino patrons, wherever they may be, to the center of the casino. This strategic arrangement plays with the fact of human nature being drawn to the center of the action. Coincidentally, or not, the games in the center of the casinos are always the games where people often spend the most money. By chance if your eye isn’t drawn then perhaps the shrill of people winning will bring your attention. Don’t be fooled though, house advantage is always higher than...
gambling truth states; "Gamblers never win, the house never loses"2 Slot. Machines and most table games allow players to make bets where the probability of winning is relatively high. Frequent wins are characterized by low payouts. These frequent wins encourage further gambles with low payouts. Frequent winning, low paying games are not the only way casinos get.
The standard investment advice to all investors was to identify securities that offered best return with lowest risks and then make a portfoli...
The concept of Efficient Market Hypothesis has weak bases. The efficacy of these assumption depends upon strength of one of the three situations. Coherent investment decisions, liberated irrational investment decisions, and arbitrage. In practice, none of these three conditions are valid. An alternate method, to explain capital market performance, based on psychology is gaining significance in the field of finance.
Modern Portfolio Theory as introduced by Markowitz (1952) frames the time dimension of investing as a single period over which the parameters of the probability distribution of asset returns are both known with certainty and are unchanging. However, neither assumption hold in real life.
There is a sense of complexity today that has led many to believe the individual investor has little chance of competing with professional brokers and investment firms. However, Malkiel states this is a major misconception as he explains in his book “A Random Walk Down Wall Street”. What does a random walk mean? The random walk means in terms of the stock market that, “short term changes in stock prices cannot be predicted”. So how does a rational investor determine which stocks to purchase to maximize returns? Chapter 1 begins by defining and determining the difference in investing and speculating. Investing defined by Malkiel is the method of “purchasing assets to gain profit in the form of reasonably predictable income or appreciation over the long term”. Speculating in a sense is predicting, but without sufficient data to support any kind of conclusion. What is investing? Investing in its simplest form is the expectation to receive greater value in the future than you have today by saving income rather than spending. For example a savings account will earn a particular interest rate as will a corporate bond. Investment returns therefore depend on the allocation of funds and future events. Traditionally there have been two approaches used by the investment community to determine asset valuation: “the firm-foundation theory” and the “castle in the air theory”. The firm foundation theory argues that each investment instrument has something called intrinsic value, which can be determined analyzing securities present conditions and future growth. The basis of this theory is to buy securities when they are temporarily undervalued and sell them when they are temporarily overvalued in comparison to there intrinsic value One of the main variables used in this theory is dividend income. A stocks intrinsic value is said to be “equal to the present value of all its future dividends”. This is done using a method called discounting. Another variable to consider is the growth rate of the dividends. The greater the growth rate the more valuable the stock. However it is difficult to determine how long growth rates will last. Other factors are risk and interest rates, which will be discussed later. Warren Buffet, the great investor of our time, used this technique in making his fortune.
I became an enthusiast of finance ever since I was at high school. At the political economy class, my teacher asked us: if you have a million RMB, how would you use it? She then introduced us the concept of investment, and I was intrigued specifically by the stock. For the latter two years of my high school, I have been reading books and articles regarding the stock market in the U.S. and in China. As one of the outstanding students ranked top 1% in College Entrance Exam in Hainan Province, China, I was accepted by the City University of Hong Kong with a full scholarship. With the strong interest in finance, I chose quantitative finance and risk management as my major.
Fundamental Analysts are concerned with the company that underlies the stock itself. They evaluate a company's past performance as well as the credibility of its accounts. Many performance ratios are created that aid the fundamental analyst with assessing the validity of a stock, such as the P/E ratio.
The business always develops due to investments and the correct most accurate analysis is an integral part of any initiative. Any initiative should be studied by financial analysts, correctly predicted in terms of financial investments and beneficiaries, tracked at various times, studied , changed on time, if necessary. Success of investments depends From financial analysis, it helps to protect the business from financial losses and predict cash flow and return of investment.
This paper will define and discuss five financial theories and how they impact business decisions made by financial managers. The theories will be the Modern Portfolio Theory, Tobin Separation Theorem, Equilibrium Theory, Arbitrage Pricing Theory (APT), and the Efficient Markets Hypothesis.
There’s a lot of choice in the betting range as well, as you can wager between 0.40 and 200.00. This means that bargain hunters and high rollers can each get something out of the Dreams and Dollars experience.
In the modern world, financial markets play a significant role, with huge volumes of everyday dealings. They form part of contemporary economic lifestyle and determine the level of success of many people. Humans have always been uncertain of what the future holds and thus, tried to forecast it. The forecast of course cannot omit the likelihood of “easy money” by forecasting the prices of equity markets in the future.