DE LEON, Kamylle Anne T.

3FM5
Synthesis Paper: Fundamental VS. Technical Analysis

Upon choosing a certain stock for one’s investment, there are two major approaches; the
Fundamental Analysis, and the Technical Analysis. With these two, there are always certain
questions arising when it comes to its overall performance for the investor; “Which is better?”,
“What is the best way to choose stocks?” and so on. Although the Fundamental Analysis, and
Technical Analysis are entirely different from one another, from its level of understanding,
analyzation, and more, these two approaches should ultimately be applied hand in hand. In this
paper, it will talk about the two’s differences, its aim for the investors, and the importance of
both combined in choosing a stock.
Firstly, the fundamental analysis and technical analysis are two major standpoints when it
comes to approaching the markets, yet are the complete opposites. For fundamental analysis, it
deals with the company’s financial statements. It can also be known as quantitative analysis,
which includes analyzing revenue, expenses, assets, liabilities and the other financial aspects of
the firm. Analysts who go for the fundamental approach focus at this information in order to gain
insights on the company’s future performance. Fundamental analysis assesses the worth of
stocks by attempting to know its intrinsic value. These fundamental analysts take into everything
account; from the entirety of an economy and industry conditions, to the financial stability and
management of each companies. Technical analysis on the other hand focuses solely on the
movements in a stock's price and volume. Technical analysts attempt to identify and recognize
opportunities in the stock through statistical trends. In this analysis, the use of stock charts is the
main way of identifying patterns and trends that can suggest how a stock will perform in the
future.
Moving on to the investor’s perspective; there is always some kind of debate that arises
when it comes to these two approaches, is one truly better than the other? This actually depends
on what kind of investor one is. For beginning investors, the fundamental analysis is
recommended since it is easier to understand rather than the technical analysis. Furthermore, the
investor’s approach in the market is also dependent on how much risk they are willing to take.
Fundamental analysis aims for an investment opportunity from a long-term perspective, and is
usually paired best for those who seek for low risk. In this case, the fundamental investor would
rather take more effort into research of a single investment opportunity. Hence, when they buy
shares, they are confident that the company will grow and that they will be able to achieve a
great return on their investment. For technical analysis, it is best used by seasoned or
experienced investors who already have an eye with the market. These are usually investors that
have a great ability in looking at stock charts, and then being able to immediately identify
movements that tell them to buy and sell. In contrast with the fundamental analysis, technical
analysis is more so for short-term perspectives, and for those who are not afraid of high risk.
Technical analysts go for a high level of risk because of their ability in following technical
signals that can give them the same high level of reward.
In hindsight, the fundamental and technical analysis are both important in choosing a
stock, there is no level of guaranteed return that can easily make one say which is better. This is
because the fundamentals of a stock, such as the company’s earnings, assets, financials, and
more, are what makes the technical aspect of it. If a stock has a great foundation, meaning its
fundamentals are stable and growing, this reflects into the technical aspect, making its stock
chart also look attractive, and vice versa. When a stock has great charts, it usually has great
fundamentals. Moreover, in choosing a stock, although it is possible to prefer one than the other,
it is far better to use both technical and fundamental analysis. The reason being is that, in using
fundamental analysis, investors get a good sense of what they are buying, and in technical
analysis, the investors can also choose the area on where they are buying. Hence, both
fundamental and technical analysis hold the same degree of importance in choosing a stock.
In conclusion, fundamental analysis deals with the financial aspect of a company, such as
its earnings and so on, while technical analysis deals with stock charts to identify patterns and
trends that suggest what a stock will do in the future. The goal for an investor whether using
fundamental or technical, or both, truly depends on their risk, outlook, as well as their knowledge
about the market. If one is more for long-term investing, fundamental analysis is more suitable,
while for short-term investing, technical analysis is more recommended. One is not better than
the other since both fundamental and technical analysis have their own place in the market,
which is best for the investor depends completely on their goals and risk tolerance.