Question

the 3 types of security analysis: economic, industry, and fundamental. Which one is the least useful when evaluating a potential stock or option investment in a particular company? Which ones are most useful? does it make a difference if you are a short-term trader vs. long-term investor? List them in order of usefulness in your evaluation process to decide whether or not to invest in a particular stock or option from a short-term investors' perspective and from a long-term investors' perspective. Also, what is Technical Analysis? and where does it fit in the evaluation of a potential securities investment?

Answer 1

Economic analysis deals with the macro economic condition (fed rate, employment data, GDP, export, etc.) of the country where the company is listed

Industrial analysis deals with analysis of the sector in which the company operates. It deals with overall sector growth, how other competitors in the sector are performing, government regulations affecting the sector and drivers of the sectors

Fundamental analysis include anlaysis of the all factor which can represent the performance of the company. Fundamental analysis is carried out through analysis of three statements and estimations

For a stock selection all three are important as each analysis can generate a different aspect about a company. If we have select the analysis in terms of importance, the order would be:

1. Fundamental Analysis (most important) - since, this will give the highest amount of details about the company

2. Industry Analysis

3. Economic Analysis (relatively less important) - since, this information is applicable for all the companies, hence, can't help out to select a single company

A long term investor will always look for fundamental analysis. As the results interpreted from fundamental analysis helps to find out the what will the value of the companies in next one to two years.

Short term term investor will be more dependent on technical analysis and economic / industrial analysis. As any events driven factor (which can be obtained from economic analysis) such as changes in fed rates, lower employment data, weak credit growth, etc. can lead to temporary changes in price. This temporary changes can be exploited by short term investors to gain profit. Sometimes, an annoucement by government related to changes in regulations can also lead to changes in share price and hence, beneficial for short term investors

Technical analysis is based on the past data where the investors try to predict the future share prices based on the share price changes in past (may be in last one week, last one month, last one year, etc.). Technical analysis is used by short term traders or short term investors. Long term investors, usually avoid technical analysis.

Technical analysis is sometimes used to understand the market sentiment as it is assumed that markets are not efficient.