It is a complete package of a variety of ingredients that involve determination, evaluation, risk management, strategic thinking, prediction of future performance, evaluating price movements, etc. Investment analysis consists of a structure and a mechanism. One thing is devoted to understanding how an investment will yield potential and profits to a company or how an investment will suffice the investor’s needs. The availability of information and financial data provides analysts and investors with various methods to undertake a proper investment analysis.
Investment Analysis is typically segregated into the following:
The first one is the Bottom-Up analysis which assesses individual stocks by using their merits. This method of Investment Analysis usually doesn’t tend to concentrate on the market scenario or the economic state to allocate assets. Instead, the focus is placed on elite entities and their stocks irrespective of the economy and/or market. In short, such analysis adopts a small-scale perspective and a has a more microeconomic approach rather than concentrating on the economy as a whole.
The second one is the Top-Down analysis that examines the economic, market and industry trends before making a more specific investment decision. In this method, Investment Analysis is concentrated towards evaluation and assessment of varied industries, and as a result, there may be cases wherein technologies outperform financials. In such cases, greater emphasis is laid and/or portfolios are allocated towards financials rather than technology and thus seek to carry out analysis of the best-performing companies in the financial sector. The fact that diversifies Top-Down analysis from Bottom-Up analysis is acquiring single technology stock and investing a sizeable proportion of capital in the stock. Such activity may be undertaken by an investor even if the overall industrial outlook is poor.
The third type of Investment Analysis is the Technical Analysis, which centres on identifying movements in stock prices recognized by analyzing the volume of share trades and prices of securities. While a fundamental analysis emphasizes a stock’s intrinsic value, a technical analysis predominantly assesses and evaluates safety based on its strengths and weaknesses, merits and demerits, etc.
By reviewing varied chartering (analytical) tools, movement of prices, as well as trade signals. For instance, if for a short period, assuming 50 days, the average price of a share surpasses the moving average of a share price for a more extended period, considering 200 days, analysts under this class view the same as an opportunity to buy.
Likewise, on the contrary, if the average price, at the shorter period (50-day period), of a share surpasses the moving average of a share price for a more extended period (200-day period), analysts view this as an opportunity to sell.
Thus, it is understood that analysis under this category do not emphasize the financial strength of an entity or the economy or the market but rather on the actual price of a stock.
Munshi Atik Chartered Accountants (formerly Enterprise House Chartered Accountants) helps you evaluate the risks and gains connected to the investment you’re planning on making, analyses its effect and impact on your current financial status and helps you forecast its growth potential and returns in the near future.