Fundamental analysis seeks to determine the fair value of securities. Unlike technical analysis, it is not based on an examination of stock prices, but rather on business data (micro factors) and a company’s economic environment (macro factors) – collectively known as fundamental data.
Key components of fundamental analysis:
- Micro factors
Company-specific factors, also referred to as company analysis, which are particularly important in connection with the bottom-up approach. - Macro factors
Macroeconomic factors, also known as global analysis, which are particularly significant in connection with the top-down approach.
Core approaches
The central question is whether investment selection should focus primarily on regions and countries (macro analysis) or rather on the characteristics and performance of individual companies (micro analysis).
Top-down approach (macro analysis)
- Investors first examine the global economy (global analysis), then look for the best sectors (sector analysis) and finally select the most promising individual stocks within that sector (stock-specific analysis).
Bottom-up approach (micro analysis)
- This approach assumes that the success of a stock investment is primarily influenced by a company’s success and performance.
- Investors first analyze individual companies (individual stock analysis) and then assess opportunities within the sector (sector analysis) and the overall market (global analysis).
Author
Günther Kornfellner, CFA, CAIA
Derivate Trader, Bybit EU