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Fundamental Analysis Is Flawed

I too started as a buy and hold investor. Like any other investor, I used tools like PE ratio,


PB ratio, EPS etc for my analysis. I compared the company PE ratio with the Market, Sector, Industry and the historic PE of the same company. I wasted a lot of money, energy and time after buying an undervalued stock and waiting for the market to discover the value.

One fine morning, it dawned on me that I must focus on market price rather than on this ratios .So I changed the formula.

   PE Ratio = Market Price / Earnings per share    TO
   Market Price = Earnings per Share * PE Ratio

So the Market price is a multiple of  EPS and a variable. This variable is nothing but the market sentiment. Our companies declare their results quarterly and this EPS remained a constant at least for a quarter .Then everything was clear, the focus should be on the sentiment rather than on earnings for the short term player.

People may argue that projected EPS is more important and we may need to research and pick stocks. I was doing all the “Research” reading the pink news paper and other published information. Later I understood all these reports were either planted or the wishful thinking of the employed analyst.

My senior (source) was working with a public sector Bank at that time and tried to predict the profitability of the particular branch where he was working and  could not. There ended fundamental analysis. How can I project the profitability of thousands of companies operating in different sectors, industries and geographical regions?

Please do analyze and predict the profitability of the company for which you are working at least for a quarter before wasting your time on other companies operating in scores of sectors and hundreds of industries.

 If you want to participate in the stock market better buy an ETF like Nifty Bees during market crashes. You will definitely do better than many professionally managed mutual funds.

If you do not have a lot of luck or right connections to get inside information, chances of becoming a successful investor is very remote. Buying lottery tickets can be a better option. Already I can see some “Fundamentalists” coming with their swords and Warren Buffet placards.

There's a small video I have made on LEADING AND LAGGING INDICATORS do watch 

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