BlogNISM Series XV- Research Analy...4. Fundamentals of Research

4. Fundamentals of Research

What is Investing?

Investment activity focuses on the potential of an asset’s value to increase over a period. In the context of the securities market, the value of an asset can increase if it can generate higher cash flow without a proportionate increase in risk or if the risk associated with the asset decreases without a proportionate decrease in the cash flow. Investment activity is generally undertaken by investors with the aim of making a return on their investment.

Active Investing

Active investing involves identifying the specific security or set of securities that should be purchased or sold. It involves constant evaluation of every security in the investment portfolio so that investors can sell securities that are priced above their fair value. Similarly, while buying securities, investors look to identify securities that are priced below their fair value.

Passive Investing

Passive investing involves investing in a broad set of securities that fairly represent the asset class the investor needs to invest. Typically, a passive investing strategy follows an indexing strategy where an investor buys all securities that are part of an index. The objective of a passive investor is to earn the rate of return that the select asset class provides.

The role of research in investment activity

The role of a fundamental research analyst comprises of two parts (i) Research and (ii) Analysis.

Research: The fundamental research analyst is responsible for researching the companies and industries they cover. This involves researching the company’s financials, management, industry trends, competitive landscape, and overall company performance. The research analyst uses various sources such as company websites, financial databases, industry reports, and analyst research notes to obtain the necessary information for analysis.

Analysis: The fundamental research analyst then uses the research gathered to analyze the company’s performance and future prospects. This involves making sense of the data and using it to identify trends and draw conclusions. The analyst then uses the results of the analysis to make investment recommendations and provide advice to clients. The analyst may also be asked to provide commentary on market and sector developments.

Insider information is information obtained from people who are directly involved in the business operations of a company, such as employees, managers, and executives. This information is typically not accessible to the general public.

The mosaic analysis is the process of using publicly available information to build a picture of a company or industry. It involves collecting and analyzing various data points, such as financial reports, news stories, and market trends, in order to gain insight into how a company or industry is performing. Unlike insider information, mosaic analysis is available to anyone with access to public data.

Technical Analysis-
Technical analysis is a method of trading in which past price movement and trading volume of security are analyzed to make predictions about future price movements. This type of analysis focuses on chart patterns, indicators, and other technical tools to identify trends and forecast future prices.

Fundamental Analysis
Fundamental analysis is a method of trading in which a company’s financial performance is analyzed to make predictions about future price movements. This type of analysis focuses on financial statements, such as balance sheets, income statements, cash flow statements, and more, to identify trends and forecast future prices.


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