Module 2: Fundamental Analysis

Module Introduction

Fundamental analysis is the cornerstone of long-term investment success. While Module 1 provided you with the foundation of how markets operate, Module 2 will teach you how to evaluate the intrinsic value of companies and their stocks. This analytical approach focuses on examining a company’s financial health, business model, competitive position, and growth prospects to determine whether a stock is undervalued, fairly valued, or overvalued at its current market price.

The legendary investor Benjamin Graham, often called the “father of value investing,” emphasized that successful investing requires treating stocks not as mere pieces of paper to be traded, but as ownership stakes in real businesses. This perspective forms the foundation of fundamental analysis – understanding the underlying business and its value proposition before making investment decisions.

Fundamental analysis stands in contrast to technical analysis (which we’ll cover in Module 3), which focuses primarily on price patterns and market sentiment. While both approaches have merit, fundamental analysis provides the tools for evaluating the long-term investment potential of companies based on their actual business performance and prospects.

This module will equip you with the skills to read and interpret financial statements, calculate and analyze key financial ratios, evaluate business models and competitive advantages, apply various valuation methodologies, and assess qualitative factors that affect company performance. These skills are essential whether you’re selecting individual stocks, evaluating mutual fund holdings, or simply wanting to better understand the companies in which you invest.

The knowledge gained in this module will serve as the foundation for developing your own investment philosophy and stock selection criteria, which we’ll explore further in Module 4 on Investment Strategies.