Investment analysis is an ongoing process of evaluating current and potential allocations of financial assets and choosing those allocations that best fit the investor's needs and goals. The two opposing considerations in investment analysis are the growth rate and risk, which are usually directly proportionate in any given investment vehicle. This means that investments with a high degree of certainty, such as U.S. Treasury securities, offer a very modest rate of return (e.g., 5 percent annually), whereas high-risk stock investments could double or quadruple in value over a few months. Through investment analysis, investors must consider the level of risk they're able to tolerate and choose investments accordingly.
Beyond weighing the return of an individual investment, investors must also consider transaction costs and opportunity costs that erode their net return. Transaction costs may be incurred each time an individual purchases or sell shares of stock or mutual funds. These fees are usually a percentage of the dollar amount being transferred. Such fees may sift 3-6 percent or more off the initial investment and final return. If they don't seem warranted, such expenses may be avoided by choosing no-load mutual funds and dealing with discount brokers, for instance. Much more nebulous is opportunity cost, which is what the investment could have earned had it been deployed elsewhere. Opportunity cost is largely the downside of investing too conservatively given one's means and circumstances.
Both risk and growth factor into opportunity costs, for example, low risk comes at a price of low returns, but it may be worth the lost opportunity if the investor is retired and will be depending on the invested funds for living expenses in the future. Using our world-class industry databases, a library of best practices, and consulting expertise, we help clients ensure the first-quartile or "best-in-class" performance of their capital projects from the first day of operation.
Our approach enables clients to minimize risk and maximize Return on Investment (ROI) by ensuring industry best practices are integrated into the design of new business as early as possible in the planning, development, and reconfiguration process. Our analysis allows companies to make investment decisions based on life-cycle costs that are extrapolated from the actual operating data in our global databases.
When you outsource your investment analyzing services to us, we guarantee you extremely useful evaluations that can guide you thoroughly in your investment process, as we know that your assets are very valuable for you and you don't want to lose them. Being loyal providers, our analysis is aboveboard so you can trust it and can apply the appraisals in your business since we assure you sky-high profits as the results of the appraisals.
A thorough understanding of the value and risk of an investment opportunity is the prerequisite to take the right investment decision. We support you with our valuation and due diligence to get this insight before you commit your money. Our fast and cost-effective way allows quick decisions before getting involved in long-lasting due diligence. Once you decide to proceed, we can strengthen your efforts with our financial and development expertise and bring in key opinion leaders if required.
Bottom-up investment analysis:
A bottom-up investing approach focuses on the analysis of individual stocks while the investor focuses his or her attention on a specific company rather than on the industry in which that company operates, or on the economy as a whole. This analysis entails analyzing individual stocks for their merits, such as valuation, management competence, pricing power and other unique characteristics of the stock and company and does not focus on economic cycles or market cycles firsthand for capital allocation decisions but instead aims to find the best companies and stocks regardless of economic, market or particular industry macro trends.
It forces investors to first consider microeconomic factors such as the company's overall financial health, financial statements, products and services, supply and demand, and other individual indicators of performance over time. For example, a company's unique marketing strategy or organizational structure may be a leading indicator that causes a bottom-up investor to invest. In essence, bottom-up investing takes more of a microeconomic approach to investing rather than a macroeconomic one, which is a hallmark of top-down investment analysis.
Top-down investment analysis:
This approach assumes individual companies can do well even in an industry that is not performing, which is a strategy that first considers macroeconomic factors when making an investment decision. Top-down investors instead look at the broad performance of the economy and then seek industries that are performing well, investing in the best opportunities within that industry. Conversely, making sound decisions based on a bottom-up investing strategy entails picking a company and giving it a thorough review before investing. This includes becoming familiar with the company's public research reports.
Top-down investment analysis emphasizes economic, market and industrial trends before making a more granular investment decision to allocate capital to specific companies. An example of a top-down approach is an investor evaluating industries and finding that financials will likely perform better than industrials; as a result, the investor decides his investment portfolio will be overweight financials and underweight industrials. The investor then proceeds to find the best stocks in each sector.
The fundamental analysis determines the health and performance of an underlying company by looking at key numbers and economic indicators. The purpose is to identify fundamentally strong companies or industries and fundamentally weak companies or industries. Investors go long on the companies that are strong and short on weak companies. Fundamental analysis uses real, public data in the evaluation of a security's value. Although most analysts use fundamental analysis to value stocks, this method of valuation can be used for just about any type of security. For example, an investor can perform fundamental analysis on a bond's value by looking at economic factors such as interest rates and the overall state of the economy. He can also look at information about the bond issuer, such as potential changes in credit ratings.
For stocks and equity instruments, this method uses revenues, earnings, future growth, return on equity, profit margins, and other data to determine a company's underlying value and potential for future growth. In terms of stocks, fundamental analysis focuses on the financial statements of the company being evaluated. The assumption that price discounts everything essentially means the market price of a security at any given point in time accurately reflects all available information and therefore represents the true fair value of the security. This assumption is based on the idea the market price always reflects the total knowledge of all market participants. Some would say that you aren't investing if you aren't performing fundamental analysis. The biggest part of fundamental analysis involves delving into the financial statements. Also known as quantitative analysis, this involves looking at revenue, expenses, assets, liabilities and all the other financial aspects of a company. Fundamental analysts look at this information to gain insight into a company's future performance, such as focusing on the company's balance sheet, income statement, cash flow statement and how they all fit together.
Technical analysis is a trading tool employed to evaluate securities and attempt to forecast their future movement by analyzing statistics gathered from trading activity, such as price movement and volume. Technical analysts focus on charts of price movement and various analytical tools to evaluate a security's strength or weakness and forecast future price changes. It believes past trading activity and price changes of security are better indicators of the security's likely future price movements than the intrinsic value of the security. It was formed out of basic concepts gleaned from Dow Theory, a theory about trading market movements which underlie all of the technical analysis are "market price discounts every factor that may influence a security's price" and "market price movements are not purely random but move in identifiable patterns and trends that repeat over time".