How to analyze stock?
1. Technical analysis
Technical analysis involves analyzing price patterns to identify trends for potential entry and exit points. Technical analysts use tools such as moving averages, support and resistance levels, and momentum indicators to make decisions.
As long-term investors, we should avoid this strategy.
2. Qualitative analysis
Qualitative analysis involves assessing a company’s strengths and weaknesses based on non-numerical data such as market trends, customer preferences, and industry outlook. This type of analysis is often used with fundamental analysis to provide a complete picture of a company’s position within its industry and its potential for growth and profitability.
It is very similar to finding the economic moat of a company.
“What we’re trying to do is we’re trying to find a business with a wide and long-lasting moat around it… protecting a terrific economic castle with an honest lord in charge of the castle.” —Warren Buffett
Here are some examples of qualitative factors and their impact on a company’s competitive advantage:
- Investor-Friendly Management – Businesses with a management that is committed to shareholder value can be attractive to investors. Coca-Cola’s long history of consistent dividend payments makes it a favorite pick among income-seeking investors like Warren Buffett.
- Strong Brand Name – Businesses with strong brand recognition can maintain market share and command premium prices. Tesla’s brand is synonymous with electric cars, and it has built a dedicated customer base that is passionate about the company’s mission, and the company can charge premium prices.
- Loyal Customer Base – Businesses with loyal customers can generate repeat business and benefit from positive word-of-mouth marketing. Apple’s customers are known for being loyal to the brand; they stand in lines for hours and buy every product.
- High Switching Cost – Companies that offer products or services that are difficult or costly to switch from can create a “sticky” customer base. Microsoft Azure Cloud offers complex cloud infrastructure services that require a significant investment of people, time, and money to switch from, making it a challenging competitor to displace.
- Economics of Scale – Economies of scale refer to the cost advantages businesses can achieve as they increase the scale of their operations. Costco’s bulk purchasing and efficient supply chain management allow it to offer its customers extremely low prices while making a profit.
- Network Effect – Businesses that create network effects, where the value of a product or service increases as more people use it. It can create a competitive advantage that is difficult for competitors to replicate and move all the users. YouTube is a good example of network effect, more users bring more content creators, and with more content, it becomes more valuable to all users.
- Sustainable Competitive Advantage – Businesses with a sustainable competitive advantage can maintain their market position over the long term. Google’s dominance in the search engine.
- Intellectual Property & Patents – Valuable intellectual property, such as patents, can create a barrier to entry for competitors. Pfizer’s patent protection on its drugs has allowed the company to stay one of the pharmaceutical industry’s leaders for several decades.
- Company Invests in R&D – Businesses that invest heavily in research and development can create new products or services that give them a competitive advantage. Amazon’s investment in technologies such as cloud computing and artificial intelligence has allowed it to expand into new needs and increase revenue each year.
- First Mover Advantage – A business that is the first to enter a market or introduce a new need, product, or service can gain a significant advantage over its competitors. One of the classic examples of first-mover advantage is the case of Microsoft Windows. Microsoft established itself as the dominant player in the PC operating systems by being one of the first-mover in this space.
3. Fundamental analysis
Fundamental analysis is a type of financial analysis often considered a quantitative research method. Fundamental analysis involves analyzing a company’s financial statements, management, industry trends, and economic factors to determine its intrinsic value and potential for growth.
The next module provides a detailed discussion of this strategy…
1. Technical analysis
Technical analysis involves analyzing price patterns to identify trends for potential entry and exit points. Technical analysts use tools such as moving averages, support and resistance levels, and momentum indicators to make decisions.
As long-term investors, we should avoid this strategy.
2. Qualitative analysis
Qualitative analysis involves assessing a company’s strengths and weaknesses based on non-numerical data such as market trends, customer preferences, and industry outlook. This type of analysis is often used with fundamental analysis to provide a complete picture of a company’s position within its industry and its potential for growth and profitability.
It is very similar to finding the economic moat of a company.
“What we’re trying to do is we’re trying to find a business with a wide and long-lasting moat around it… protecting a terrific economic castle with an honest lord in charge of the castle.” —Warren Buffett
Here are some examples of qualitative factors and their impact on a company’s competitive advantage:
- Investor-Friendly Management – Businesses with a management that is committed to shareholder value can be attractive to investors. Coca-Cola’s long history of consistent dividend payments makes it a favorite pick among income-seeking investors like Warren Buffett.
- Strong Brand Name – Businesses with strong brand recognition can maintain market share and command premium prices. Tesla’s brand is synonymous with electric cars, and it has built a dedicated customer base that is passionate about the company’s mission, and the company can charge premium prices.
- Loyal Customer Base – Businesses with loyal customers can generate repeat business and benefit from positive word-of-mouth marketing. Apple’s customers are known for being loyal to the brand; they stand in lines for hours and buy every product.
- High Switching Cost – Companies that offer products or services that are difficult or costly to switch from can create a “sticky” customer base. Microsoft Azure Cloud offers complex cloud infrastructure services that require a significant investment of people, time, and money to switch from, making it a challenging competitor to displace.
- Economics of Scale – Economies of scale refer to the cost advantages businesses can achieve as they increase the scale of their operations. Costco’s bulk purchasing and efficient supply chain management allow it to offer its customers extremely low prices while making a profit.
- Network Effect – Businesses that create network effects, where the value of a product or service increases as more people use it. It can create a competitive advantage that is difficult for competitors to replicate and move all the users. YouTube is a good example of network effect, more users bring more content creators, and with more content, it becomes more valuable to all users.
- Sustainable Competitive Advantage – Businesses with a sustainable competitive advantage can maintain their market position over the long term. Google’s dominance in the search engine.
- Intellectual Property & Patents – Valuable intellectual property, such as patents, can create a barrier to entry for competitors. Pfizer’s patent protection on its drugs has allowed the company to stay one of the pharmaceutical industry’s leaders for several decades.
- Company Invests in R&D – Businesses that invest heavily in research and development can create new products or services that give them a competitive advantage. Amazon’s investment in technologies such as cloud computing and artificial intelligence has allowed it to expand into new needs and increase revenue each year.
- First Mover Advantage – A business that is the first to enter a market or introduce a new need, product, or service can gain a significant advantage over its competitors. One of the classic examples of first-mover advantage is the case of Microsoft Windows. Microsoft established itself as the dominant player in the PC operating systems by being one of the first-mover in this space.
3. Fundamental analysis
Fundamental analysis is a type of financial analysis often considered a quantitative research method. Fundamental analysis involves analyzing a company’s financial statements, management, industry trends, and economic factors to determine its intrinsic value and potential for growth.
The next module provides a detailed discussion of this strategy…