According to most financial authorities including the FCA, Yes now is a good time to invest in the markets. Still, the question is also a personal perspective and you need to ascertain whether or not it’s a good time for you to invest.
Financial Climate
2022 was turbulent for the financial sector, it saw the collapse of some major US Banks which automatically had a knock-on effect on the world economy. There is an expression within the financial sector, which is, “If America sneezes the whole world catches a cold.” This tongue is cheek expression is meant to portray how most of the finance of the world is affected by the ups and downs of the US Markets.
Another major bank that nearly went under in 2022 is Credit Suisse, but luckily for them, they were rescued by UBS (a USA banking giant). Had the bank collapsed it would have been an uncertain time in Europe as Credit Suisse is Switzerland’s second-largest Bank.
Why does it matter?
The reason elements such as banking collapse matter is because it’s these fundamentals that contribute to investor confidence, if investors all become nervous simultaneously because of fundamental pressure, a stock that you may hold in your inventory could become worth far less or worse. Worthless in a matter of the house. If stocks are your chosen investment vehicle then its so very important to understand how both technical and fundamental trends can affect a stock’s price.
What are the two types of trading analysis?
There are two different trends that traders will look at, some will only use one type whereas newer traders are seeing value in trading on both. The first trend that we have already touched on is called “Fundamental Analysis.
Fundamental Analysis
Fundamental analysis is a method used in trading and investing to evaluate the intrinsic value of financial assets, e.g. currency, bonds, or stocks. It involves analysing various fundamental factors that can influence the asset’s price, such as the company’s financial performance, economic conditions, industry outlook, and other qualitative and quantitative factors.
The goal of fundamental analysis is to assess whether the current market price of an asset is overvalued, undervalued, or fairly valued, based on its underlying fundamentals. By examining the core aspects of an asset, the fundamental analysis aims to determine its potential for future growth or decline.
Here are some key elements and techniques used in the fundamental analysis:
Financial Statements
Fundamental analysts review a company’s financial statements, including the balance sheet, income statement, and cash flow statement. These statements provide information on the company’s revenues, expenses, assets, liabilities, and cash flows, helping analysts assess its financial health and profitability.
Company Valuation
Fundamental analysts use various valuation models, such as price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, price-to-book (P/B) ratio, and discounted cash flow (DCF) analysis, to estimate the intrinsic value of a company. These models compare the asset’s price to its underlying financial metrics to determine whether it is under or overvalued.
Industry Analysis
Fundamental analysts examine the broader industry in which a company operates. They consider factors such as market size, competition, regulatory environment, technological advancements, and growth prospects. Understanding the industry dynamics helps analysts assess a company’s competitive position and prospects.
Economic Analysis
Fundamental analysts analyse macroeconomic factors, such as interest rates, inflation, GDP growth, employment data, and geopolitical events. These factors can significantly impact a company’s performance and the overall market conditions.
Management and Governance
Assessing a company’s management team, their track record, strategic decisions, and corporate governance practices is an essential aspect of fundamental analysis. Competent leadership and sound governance can contribute to a company’s long-term success.
Qualitative Factors
Fundamental analysts also consider qualitative aspects, such as brand reputation, intellectual property, customer loyalty, product differentiation, and regulatory risks. These factors can influence a company’s competitive advantage and sustainability.
Fundamental analysis provides a long-term perspective on an asset’s value and is often used by investors who seek to make informed investment decisions based on the underlying fundamentals. It helps identify potential investment opportunities, understands the risks involved, and determine an appropriate entry or exit point for a position.
It’s worth noting that fundamental analysis is subject to interpretation and relies on assumptions and forecasts. It is not immune to market fluctuations and may not always predict short-term price movements accurately. Traders often combine fundamental analysis with other approaches, such as technical analysis, to form a comprehensive trading strategy.
Technical Analysis
Technical analysis is a methodology used in trading and investing to make decisions based on historical price and volume data of financial assets, such as stocks, currencies, or commodities. It involves analysing charts and patterns to predict future price movements and identify trading opportunities.
The underlying principle of technical analysis is that market prices reflect all available information, and by studying historical price patterns, trends, and indicators, traders can gain insights into the market’s future direction. Technical analysts believe that price movements tend to repeat themselves due to human behaviour and market psychology.
Here are some key concepts and tools used in technical analysis:
Price Charts
Technical analysts primarily use price charts to visualize historical price data over different periods, such as line charts, bar charts, or candlestick charts. These charts display the open, high, low, and closing prices of an asset.
Trend Analysis
Technical analysts identify trends by examining patterns in price movements. An uptrend consists of higher highs and higher lows, while a downtrend consists of lower highs and lower lows. Sideways or range-bound markets show no clear trend.
Support and Resistance Levels
These are price levels where the asset’s price tends to find support (stops declining) or resistance (stops rising). Traders look for breakouts above resistance or bounce from support levels as potential trading opportunities.
Technical Indicators
These are mathematical calculations applied to price and volume data to provide additional insights. Examples include moving averages, relative strength index (RSI), stochastic oscillators, and MACD (Moving Average Convergence Divergence). Indicators help traders identify overbought or oversold conditions and potential trend reversals.
Chart Patterns
The role of the technical analyst is to study recurring patterns in price charts, these patterns are things like the head and shoulders, double tops/bottoms, triangles, or flags. These patterns are believed to signal potential price reversals or continuations.
Volume Analysis:
Traders analyse trading volume to gauge the strength or weakness of price movements. Higher volume during price advances or declines can indicate a market conviction, while lower volume may suggest indecision or lack of interest.
It’s important to note that technical analysis is not foolproof and relies on probabilistic interpretations. It has its limitations and should be used in conjunction with other forms of analysis, such as fundamental analysis (evaluating a company’s financial health and market factors). Successful traders often combine different approaches to develop a well-rounded trading strategy.
What makes now a good time to invest?
The reason is, there is really no bad time to invest if you have the means. Market conditions and timings 99% of the time do not enter into an investor’s decision-making process, it’s all about what you invest into rather than when. That’s not to say timing bears no relevance, a stock broker strategy will often be to buy low, then sell high once markets improve.
The best way to know when and how to invest is to use an investment specialist such as New Capital Link.
I’ve never invested before.
Being a new investor can be a very daunting prospect, but most realise that at a time when inflation is either steady or rising, it’s so important to ensure your money is increasing at the same or better rate.
If you are a new or even a seasoned investor, it’s always a good idea to consult with a professional market broker or introducer.
Investment Specialists.
At New Capital Link we have the skills and requisite knowledge to ensure your money and investments are a safe & profitable as possible. Because of our market stance, we have access to products and opportunities that no other brokerage will be able to offer.
If you looking to take your first steps on an investment Journey then contact our friendly team today.
