Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis...
-
Upload
marion-sims -
Category
Documents
-
view
217 -
download
0
Transcript of Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis...
![Page 1: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/1.jpg)
Security ValuationSecurity Valuationand Selectionand Selection
Chapter 17
![Page 2: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/2.jpg)
Fundamental Analysis Fundamental Analysis versus Technical Analysisversus Technical Analysis
Fundamental analysis the practice of evaluating the information
contained in financial statements, industry reports, and economic factors to determine the intrinsic value of a firm
![Page 3: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/3.jpg)
Fundamental Analysis Fundamental Analysis versus Technical Analysisversus Technical Analysis
Intrinsic value the “true” or economic, value of a firm
![Page 4: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/4.jpg)
Fundamental Analysis Fundamental Analysis versus Technical Analysisversus Technical Analysis
Fundamentalist analysts who utilize analysis in an attempt
to forecast future stock price movements
![Page 5: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/5.jpg)
Fundamental Analysis Fundamental Analysis versus Technical Analysisversus Technical Analysis
Technical analysis examination of supply and demand for
securities to determine trends in price movements of stocks or financial instruments
![Page 6: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/6.jpg)
Fundamental Analysis Fundamental Analysis versus Technical Analysisversus Technical Analysis
Technicians the term given to analysts who examine
stocks and financial markets using technical analysis
![Page 7: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/7.jpg)
Economic AnalysisEconomic Analysis
Forecasting business cycles to determine when to expect changes in the
business cycle, or the direction in which aggregate economic activity is moving
![Page 8: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/8.jpg)
Economic AnalysisEconomic Analysis
Business cycle the movement in aggregate economic
activity as measured by the gross domestic product (GDP)
![Page 9: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/9.jpg)
Economic AnalysisEconomic Analysis
Expansion increasing economic activity
![Page 10: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/10.jpg)
Economic AnalysisEconomic Analysis
Contraction decreasing economic activity
![Page 11: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/11.jpg)
Economic AnalysisEconomic Analysis
Gross Domestic Product (GDP) a measure of all of the goods and services
produced in the economy during a specified time period
![Page 12: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/12.jpg)
Economic AnalysisEconomic Analysis
Recession two consecutive quarters of economic
contraction, or decline, in the GDP
![Page 13: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/13.jpg)
Economic AnalysisEconomic Analysis
![Page 14: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/14.jpg)
Economic AnalysisEconomic Analysis
Economic indicators Leading economic indicators
economic measures that tend to move prior to, or precede, movements in the business cycle
![Page 15: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/15.jpg)
Economic AnalysisEconomic Analysis
Economic indicators Lagging economic indicators
economic measures that tend to move after, or follow, movements in the general economy (business cycles)
![Page 16: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/16.jpg)
Economic AnalysisEconomic Analysis
Economic indicators Coincident indicators
economic measures that tend to mirror, or move at the same time as, business cycles
![Page 17: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/17.jpg)
Business CyclesBusiness Cycles
![Page 18: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/18.jpg)
Business Cycles - Monetary Business Cycles - Monetary Policy and Fiscal PolicyPolicy and Fiscal Policy
Monetary Policy the means by which the Federal Reserve
influences economic conditions by managing the nation’s money supply
![Page 19: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/19.jpg)
Business Cycles - Monetary Business Cycles - Monetary Policy and Fiscal PolicyPolicy and Fiscal Policy
Fiscal Policy Government spending, which is primarily
supported by the government’s ability to tax individuals and businesses
![Page 20: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/20.jpg)
Business Cycles - Monetary Business Cycles - Monetary Policy and Fiscal PolicyPolicy and Fiscal Policy
Deficit spending situation that occurs when the government
spends more than it collects in taxes
![Page 21: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/21.jpg)
Industry AnalysisIndustry Analysis
Cyclical industries industries that tend to be directly related to
business cycles such that they perform best during expansions and worst during contractions
![Page 22: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/22.jpg)
Industry AnalysisIndustry Analysis
Defensive, or countercyclical, industries industries that tend to perform best when
the economy is in a contraction or recession, but are generally the poorest performers in expanding economies
![Page 23: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/23.jpg)
Industry AnalysisIndustry Analysis
Industry life cycle the various phases of an industry with
respect to its growth in sales and its competitive conditions
![Page 24: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/24.jpg)
Industry Sales
Life-Cycle Stages
Introductory
Expansion (Growth)
Mature
Industry Life CycleIndustry Life Cycle
![Page 25: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/25.jpg)
Evaluating the Firm’s Evaluating the Firm’s Financial PositionFinancial Position
Financial statement analysis comparison to other similar firms forecast direction for future predict earnings and dividends risk evaluation
![Page 26: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/26.jpg)
Stock Valuation TechniquesStock Valuation Techniques
Dividend discount models (DDM) a model that utilizes the discounted cash
flow principle to value common stock value is represented by the present value of
the dividends expected to be received from investing in the stock
![Page 27: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/27.jpg)
Dividend discount models (DDM)
( ) ( ) ( )
( )∑∞
=
∞∞
+=
+++
++
+=
===
1tt
s
t
s2
s
21
s
1
0s
k1
D̂
k1
D̂
k1
D̂
k1
D̂
dividends future expected of PV P̂V stock of Value
L
Stock Valuation TechniquesStock Valuation Techniques
![Page 28: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/28.jpg)
Stock Valuation TechniquesStock Valuation Techniques
Valuation using P/E ratios ratio computed by dividing the current
market price per share, P0, by the earnings per share, EPS0
![Page 29: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/29.jpg)
Stock Valuation TechniquesStock Valuation Techniques
Evaluation using the economic value added (EVA) approach method used to evaluate if the earnings
generated by a firm are sufficient to compensate the suppliers of funds - both the bondholders and the stockholders
![Page 30: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/30.jpg)
Evaluation using the economic value added (EVA) approach
( )
( ) ⎟⎠⎞⎜
⎝⎛ ×−=
⎟⎠⎞⎜
⎝⎛×=
capitalInvested
WACCT-1EBIT
capitalInvested WACC- IRR EVA
Stock Valuation TechniquesStock Valuation Techniques
![Page 31: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/31.jpg)
Economic Value Added Economic Value Added (EVA)(EVA)
Changing the capital structure can change value because the WACC is affected
Increasing the efficiency of the firm through reductions in operating expenses or increases in revenue will increase operating income and thus increase value
![Page 32: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/32.jpg)
Technical AnalysisTechnical Analysis
Charting - using charts and graphs Bar chart
a graph that indicates the high, low, and closing price movements for a stock during a specified period
![Page 33: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/33.jpg)
Technical AnalysisTechnical Analysis
Charting - using charts and graphs Trend line
a line that indicates the direction of the stock price movements
it is drawn so that it touches either the high prices or the low prices for some of the trading days
![Page 34: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/34.jpg)
Technical AnalysisTechnical Analysis
Charting - using charts and graphs Trend line penetration
the point at which the trading line crosses the trend line
![Page 35: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/35.jpg)
Technical AnalysisTechnical Analysis
![Page 36: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/36.jpg)
Technical AnalysisTechnical Analysis
Measures and indicators used by technical analysts The Dow Theory
a technique used to predict reversals in market patterns by examining the movements of the Dow Jones Industrial Average and the Dow Jones Transportation Average
![Page 37: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/37.jpg)
Technical AnalysisTechnical Analysis
Measures and indicators used by technical analysts Moving averages
stock price averages for a fixed time frame, say 100 days, computed for a particular period of time
![Page 38: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/38.jpg)
Technical AnalysisTechnical Analysis
Measures and indicators used by technical analysts Technical indicators
measures used by technical analysts to forecast future movements in stock prices
![Page 39: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/39.jpg)
Technical AnalysisTechnical Analysis
Measures and indicators used by technical analysts Market breadth indicators
measure the trading volume and the range of trading that takes place in the market
![Page 40: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/40.jpg)
Technical AnalysisTechnical Analysis
Measures and indicators used by technical analysts Advance/decline line
a graph that depicts the results computing the difference between the number of advancing stocks and the number of declining stocks over some time period
![Page 41: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/41.jpg)
Technical AnalysisTechnical Analysis
Measures and indicators used by technical analysts Sentiment indicators
technical indicators that are used to monitor the “mood” or psychology of the market
![Page 42: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/42.jpg)
Stock Selection CriteriaStock Selection Criteria
Growth stocks stocks of firms that have many positive net
present value opportunities in general, these firms exhibit sales and
earnings growth that significantly exceed the industry averages
![Page 43: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/43.jpg)
Value stocks stocks of firms that are mispriced,
especially those that are undervalued
$1.99
Stock Selection CriteriaStock Selection Criteria
![Page 44: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/44.jpg)
Investment Selection in Investment Selection in Efficient MarketsEfficient Markets
Abnormal returns returns that exceed the returns earned by
investments with similar risks
Weak form efficiency current market prices reflect all historical
information, including any information that might be provided by examining past price movements and trading volume data
![Page 45: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/45.jpg)
Investment Selection in Investment Selection in Efficient MarketsEfficient Markets
Semistrong form efficiency current market prices reflect all publicly
available information, including information contained in historical data and information contained in current financial statements
Strong form efficiency current market prices reflect all
information, whether it is public or private
![Page 46: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/46.jpg)
Investment Selection in Investment Selection in Efficient MarketsEfficient Markets
Even if we accept that abnormal returns cannot be earned on a consistent basis, we still need to evaluate the investments we select to ensure the risk position is appropriate and that our investment goals are being met
![Page 47: Security Valuation and Selection Chapter 17. Fundamental Analysis versus Technical Analysis uFundamental analysis F the practice of evaluating the information.](https://reader036.fdocuments.in/reader036/viewer/2022070403/56649f285503460f94c415df/html5/thumbnails/47.jpg)
End of Chapter 17End of Chapter 17
Security Valuationand Selection