Fundamental and technical analysis is the market analysis method which valuates the stock price and other factors of the portfolio and individuals security in order to measure the investment level in the stock. In this report, fundamental and technical analysis both has been done on the 20 Singapore companies in order to measure their performance and position of investment. 10-10 companies have been chosen for the both the analysis method to evaluate that which portfolio is doing better and what is the level of investment in each of the group.
Technical analysis method evaluates the investment decision of a security through looking over the supply and demand of the stock of that organization where in case of fundamental analysis, the intrinsic value of a stock is calculated to identify the performance and the level of investment in that company (Kinsky, 2011). The fair value of stock is measured in this method to make decision about the investment in the comapny.
The Efficient Market Hypothesis (EMH) depends on an activity of a hypothesis which is known s “random walk theory,” It is utilized to separate a value arrangement, where the historical price could change the current offer cost of a specific stock. The thought of random walk theory rationale delineate that if the data stream is unchecked and the data have a brisk reflection over the stock costs, at that point the value change on tomorrow would portray just news about future and it would likewise be autonomous in worry to the present value changes. Besides news right now would by rash and in this manner value changes ought to be imprudent and easygoing (Madura, 2014). As a result, the offer costs would completely mirror all the new data and still uninformed financial specialists exchanging an enhanced portfolio over the cost in the market and would get a rate of return as liberal as that achieved by the specialists.
As indicated by Schlichting, (2013), changes in the stock cost are free from one another and they additionally have the comparable likelihood conveyance. The costs of a stock are ordinarily known as flighty and irregular. It has been contended by Phillips and Stawarski, (2016), that the market and the stocks may be similarly as self-assertive as flipping a coin while Madura (2014) has delineated into an investigation that stock costs generally clarify arbitrary strolls all through a period. The adjustments in the costs are rash since they occur just in response to truly new data though as indicated by a reality it is very new.
Further, the behavioural finance is only an examination over the speculator showcase conduct which gets from psychosomatic standards of settling on the choice. It is regularly used to clarify that why speculators move or purchase an item. This idea of social science is identified with the intellectual brain research hypothesis which portrays about the human basic leadership process and furthermore delineates the client about the budgetary market financial matters. This idea centres upon how investors translate and continue on data to settle on a choice about educated venture. It has been investigated through an examination by Palicka, (2011) that Investors don’t always act in a typical, ordinary and an unprejudiced way. This idea of conduct back delineates around an accentuation upon investor conduct prompting an assortment of market inconsistency.
As indicated by Palicka (2011), Behavioural Finance is an examination about brain science that how it influences the investment choice process and the monetary market of an investor and a state individually. As per Kurth, (2013), social back is a basic and great idea to settle on a superior choice about speculation. Additionally it has been expressed by Madura (2014) that Behavioural back is the investigation of the weight of brain science on the specialists’ conduct in worry of fund and the progressive impact on financial markets. Further it has been examined that some money related things are plausible to rely on the investors less adjusted conduct that outcomes from partialities, psychosomatic factors and heuristics.
As indicated by the EMH, the financing markets are instructive proficient. Each individual could have entrée to possible data and as a result; the news of speculation couldn’t be enslaved. However, the correct speculative imitation has produced generous discussion in worry of 2 ideas which are access and accessibility. From the point of view of investors, it is very simple for each person to have an entrance for gathering the data about the market; while on the off chance that it set in motion than it don’t happen. Every day custom and assorted ways of life involve differing available time and strategy to have permission to data about the market. Regularly, in the procedures of venture, data is reachable just to an incomplete gathering of investors or it is possible to theorists some time before it transforms into realistic to the normal network (Elton, Gruber, Brown and Goetzmann, 2009). In this manner, the general population who have the information about the EMH, must work in an effective way. Aside from the various huge components, the data is very mandatory for each investor to keep up and settle on the choice likewise.
The strategies which have been utilized to look at the securities and figure the venture results fall into two gatherings: basic examination and specialized investigation. In the speculation forms, for safeguarding a long relationship with the organization and contribute the sum for a more extended period, principal investigation is a decent decision for a financial specialist. As such, when a speculator is endeavouring to evaluate the monetary information, he or she will in general shape a picture of the enterprise to be joined in their portfolios and they a short time later encourage an affirmation association with the organization (Krantz, 2016). In the situation of EMH, crucial examination has been supplanted by the semi solid model shape proficiency”.
Efficient Market Hypothesis (EMH) can’t help contradicting the accentuation which has been put by the specialized examination on breaking down over the costs heading through the past market information study and it likewise proposes that analysis methodology ought to be associated with current costs and market data. In result, the recorded improvement and bearing of a partnership or speculation system are completely pondered their crash on venture choice process (Kisky, 2011). Past market information and graphs ought not to be in the primary focal point of explore or this portrays to accomplish significant yields, yet they should not be just enchanted as memories. In any case, the rule that “economy keeps running around” and “the history always repeat itself” have been strappingly featured for the financial specialists and people.
As of now it has been expressed that Behavioural Finance is a system with interdisciplinary that consolidates the components from human science, history humanities and brain research. Thus its hypothetical perspectives are more perplexing in comparison to Efficient Market Hypothesis (EMH) that misrepresented as a very rearranged or unpractised methodology. The potential expenses for financial specialists, however, are very genuine. In refinement, Behavioural Finance, on clarification of its perplexing and creative nature does not seem, by all accounts, to be broadly acknowledged by the mass of the contributing gathering of individuals as a moment (Baker and Nofsinger, 2010). In spite of the fact that the decision making is one of the crucial factors for the investors, they take concern on the various factors and significant changes in the stock price of the business.
In order to conduct this study and research, 20 Singapore companies have been focused. 2 portfolios (technical portfolio and fundamental portfolio) have been prepared for this report. Each of the portfolio consist 10 companies.
Technical analysis evaluation has been done to evaluate the data of the company which represents that the demand and supply if each of the stock must be measured in order to evaluate that whether the stock is a good choice for the purpose of investment or not whereas, the fundamental analysis evaluates the overall financial position of the business to measure that whether the company is a good choice for the investment or not (Baker and Nofsinger, 2010). The major difference among both the analysis method is that technical analysis is used by the companies in order to invest for short term whereas the fundamental analysis study is done by the investors to evaluate the long term performance of the business. The Singapore dollar 100000 is to be invested in both the portfolios in order to improve the return and reduce the risk level of the investors.
In this study, the different methods of fundamental analysis and technical analysis have been applied on the stock and the profile to measure the total return from the portfolio. The portfolios companies have been chosen in the research are on the basis of their market capital, attractiveness of the stock in the market and the overall performance of the business. The companies have been segregated in the portfolios on the basis of fluctuations in the stock price and the sensible choices. In the current scenario, 2 portfolios have been shaped by the investors and the financial analyst to identify that how much return could be got from the portfolios and the total investment of SGD 1,00,000 (Appendix).
Dividend discount model has been applied on the stocks to measure the performance of the stock and the investment position of the company. Along with that, PE model has also been applied because it is one of the appropriate methods of stock valuation. The stock price of global Logistics limited has been taken into the concern to conduct the method.
The dividend discount model study represents that the intrinsic value of stock of the company is quite higher than the market price of the business and thus, the stock is a good option for the purpose of investment (Ackert and Deaves, 2009). The calculations of intrinsic value of the company have been given below:
|
Dividend Discount Model |
|
|
Dividend expected |
0.06 |
|
Growth rate |
3% |
|
Discount rate |
5.26% |
|
Intrinsic Value |
2.57 |
|
Market Price |
0.16 |
|
Undervalued |
(Yahoo Finance, 2018)
It has been observed that the performance of the company is quite better. On the basis of the current market price of the company, the stock price is $ 0.16 whereas the market price of the company should be $ 2.57. It represents that it is a good time to buy the stock.
The PE model analysis method of the company is as follows:
|
PE Multiple Model |
|
|
Industry PE ratio |
28.30 |
|
EPS |
0.14 |
|
Intrinsic Value |
3.96 |
|
Market Price |
0.16 |
|
Undervalued |
(Yahoo Finance, 2018)
It has been observed that the performance of the company is quite better. On the basis of the current market price of the company, the stock price is $ 0.16 whereas the market price of the company should be $ 3.96. It represents that it is a good time to buy the stock.
After the fundamental analysis, technical analysis study has been done on other portfolio. The line chart and moving average methods have been applied on the stock of Chip Eng Seng. The methods of the company are as follows:
Line Chart:
Line chart study represents that the stock price of the company is quite stable and thus the risk level would be lower in the stock. The stock is a good option for the purpose of investment
Further, the moving average study has been done and it has been found that the average return from the stock is 10.5% which is quite better and would offer the better return to the stockholders (Yahoo Finance, 2018).
On the basis of evaluation on both the portfolios, it has been concluded that the portfolio-2 (technical portfolio) is better option. Investing into this portfolio would offer return around 5%. The holding period return and the other factors also brief that if the investors wants to invest for long term than fundamental portfolio is better or vice-versa.
Conclusion:
To conclude, both the portfolios are performing well. It deepens on the investor’s choice to invest in which portfolio as both of them focuses on the different aspect and offer the result on the basis of the time period of investment.
References:
Ackert, L. & Deaves, R. (2009). Behavioral Finance: Psychology, Decision-Making, & Markets. Cengage Learning.
Baker, H.K. & Nofsinger, J.R. (2010). Behavioral Finance: Investors, Corporations, & Markets. John Wiley & Sons.
Elton, E.J., Gruber, M.J., Brown, S.J., & Goetzmann, W.N. (2009). Modern Portfolio Theory & Investment Analysis. John Wiley & Sons.
Kinsky, R. (2011). Charting Made Simple: A Beginner’s Guide to Technical Analysis. John Wiley & Sons.
Krantz, M. (2016). Fundamental Analysis for Dummies. John Wiley & Sons.
Kurth, S. (2013). Critical Review about Implications of the Efficient Market Hypothesis. GRIN Verlag.
Madura, J. (2014). Financial Markets & Institutions. Cengage Learning.
Palicka, V.J. (2011). Fusion Analysis: Merging Fundamental & Technical Analysis for Risk-Adjusted Excess Returns. McGraw Hill Professional.
Phillips, P.P. & Stawarski, C.A. (2016). Data Collection: Planning for & Collecting All Types of Data. John Wiley & Sons.
Schlichting, T. (2013). Fundamental Analysis, Behavioral Finance & Technical Analysis on the Stock Market. GRIN Verlag.
Yahoo finance. (2018). SBS transit Limited: Key Statics. [Online]. Retrieved from: https://sg.finance.yahoo.com/quote/SBVV.SI/history?p=SBVV.SI
Yahoo finance. (2018). Chip eng Seng corporation limited: Key Statics. [Online]. Retrieved from: https://sg.finance.yahoo.com/quote/C(29.SI/history?p=C(29.SI
Yahoo finance. (2018. Global Logistic Properties Limited. [Online]. Retrieved from: https://finance.yahoo.com/quote/MC0.SI/profile?p=MC0.SI7
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