How to conduct fundamental and technical analysis objectively

In this idea we present the essential elements of a good fundamental and technical analysis, ideal for those investors who wish to make an investment in the medium and long term. Let us begin!

1. Choose the company well. As a general rule, the more market capitalization, the greater security it offers against their investors, though that’s not to say you can’t invest in small-cap companies. In fact, there are great success stories of companies that started small and gained capitalization and interest from investors, until they reached the large benchmarks of their respective countries. In addition, a long-term investment of this type can offer higher returns than an already established company, as well as increasingly higher dividends. We will talk in more detail about dividends below.

But… how can I know which are the best companies to invest in? If you are a new trader and investor, we recommend that you start with companies that you know and that is a sector that has a stable growth forecast, or at least that does not wow to suffer a setback due to geopolitical or market conditions. Let’s say you decide to invest in a supermarket chain in favorable market conditions with food consumption rising year after year due to a considerable increase in birth rates in the countries where the listed company operates, as well as stable profit margins during the last 3 years. Analyze the financial results of the company and compare numbers with previous years. Are there signs of weakness in profit margins? Is the company closing more and more stores? What is your level of indebtedness compared to the competition? And even sometimes, it is enough to pay a visit to several of the supermarkets, either in your area or in other cities. Is there a good influx of customers compared to the competition? Do they adjust much more the margins of the products?

2. Study the company and see beyond the numbers it offers in the financial results. Companies sometimes use techniques to mask their moments of fragility precisely so as not to cause panic among investors. Read news about the company, opinions, etc. Rather than asking yourself why I should invest in it, you should be asking yourself what are the reasons not to invest in it. Do not get carried away by the media and make a critical analysis. Remember that TradingView provides fundamental company data, including dividend payout dates and financial results.

3. Dividends: For a medium or long-term investment, receiving dividends can make a difference. There are a large number of companies that offer dividend yields of 5% per year. In unfavorable market conditions you can see returns of 20% in dividends if you buy at the right time. An investor in a company that trades with constant ups and downs can make money simply by holding the stock. If one day this company breaks resistance levels and starts a new upward leg, then it will also be favored by performance. What’s more, having bought at lower levels, as companies tend to raise their dividend to continue creating interest among investors, your dividend yield will be multiplied without you having to do anything. However, not all companies apply dividend growth strategies and still offer a good investment opportunity.

4. Carry out a good technical analysis: It is useless to carry out a fundamental analysis of the category if the long-term trend of the company on the stock market is bearish. Watch the long-term support levels to look for entries and do not enter with all your capital at once, it is always good to make several entries at various levels. Trading history is littered with investors who thought the time was right and then saw their investment take a loss. In addition, we can fall into a greater danger, that is, maintain the position at a loss for many years. There are many regretful investors after saying “it will recover soon”. Always keep an eye on the fundamentals. If they have worsened, we advise you not to add more capital. Many times when there is a trend reversal it can last a long time and the losses can be very severe. You can also decide to fully or partially close the positions and invest in another asset with better prospects. Keep a cool mind and don’t get carried away by emotions.

For medium and long-term investments, you do not need very complex indicators, with a MACD , EMA either RSI in standard configurations it should be enough to search for good entries.

5. Diversify: You can be the best company in the world and still suffer a setback in the markets. We have seen large companies down -70% in less than 6 months. The market can be irrational and your survival depends on diversifying well their investments. Invest in those sectors with good prospects for the present and future, and avoid buying companies with very attractive prices but poor fundamental and technical data. Also, always monitor geopolitical and market conditions and those sectors that may be affected or benefit. Making a calculated prediction of this and investing ahead of trends is key to higher returns.

EXAMPLE

: Let’s see a practical example with the company Telefónica SA

• Telefónica is a company already consolidated in the market, with large capitalization. After analyzing their We can see that since José María Álvarez-Pallete took over as CEO of Telefónica, the company has reduced its debt by 50%. In fact, the company is again initiating large-scale investments and betting on technology with Telefónica Tech, a division that is committed to accelerating the adoption of technology through cybersecurity, cloud, IoT , big data, AI and blockchain. Also, their Profit margins have improved slightly, although they are in a mature market such as telecommunications, so growth projections are more limited. On the other hand, we have the merger between Orange and MásMóvil. In Spain, the legislation in the telecommunications sector harms the number 1 operator in the ranking to a greater extent in terms of volume and number of customers. After the merger of Orange and MásMóvil, Telefónica will be relegated to second position in the ranking and with it less pressure for the company, with a possible increase in their profit margins.

As for the dividend, it offers a dividend of more than 5.5%, in the top ranking number 11 in dividends on the Spanish stock market and with a forecast of maintaining it in the medium and long term.

Its technical analysis shows a slightly remarkable improvement, after a long-term bearish trend that has lasted 13 years. The last 2 years Telefónica has recovered lost ground, but it is still a long way from the numbers of 2007. In addition, Telefónica presents a considerable risk if the benchmark indices suffer a setback such as the one seen in March 2022, since it has great liquidity. When the IBEX 35 suffers large falls, heavyweights like Telefónica can suffer greatly in the price.

At the entry level, we find a medium- and long-term bullish trend that began in September 2022 with no signs of breaking support levels.

REMEMBER

: Carry out a critical analysis both fundamental and technical, evaluate the risks and establish different entry zones to make purchases. Also, remember that an investment does not have to stay in the portfolio forever, especially when the fundamentals change negatively.

I hope you liked the idea. you can leave us their comments below. See you in the charts!

Leave a Comment