Fundamental analysis is the core of long term value investing. ccris check online

Without it, you are driven by 2 things, just like most people are, the moment you step into the share market:

Greed and Fear

Why?

When the economy improves, people become bullish about the market.

Greed will cause 3 things in most people:

• Boost their confidence to the point of arrogance
• Stimulate risk-seeking behavior,
• Motivate them to chase the winners

If you are one of the people affected by these, it will blind your judgement and subsequently result in poor decision making.

As most people are fixated to short term gains when prices are rising, they are more than willing to purchase stocks overpriced.

…which results in the prices of the stocks being bid up to an overvalued level.

You mustn’t fall into this trap.

How NOT to fall into such pscyhological trap?

Well, one major factor why people are vulnerable to losing money in the share market is that they use emotion in their decision making process.

Compared to systematic and logical approach, this method requires no work.

It’s effortless.

Instead of performing due diligence, such as analyzing the underlying business performance, profit growth prospects and value of the business, emotional decision-making uses some mental short-cuts based on similarity & familiarity to judge what the market will do next.

For example, when you receive some negative news of a stock, it will link the news to price falling and will trigger the fear of loss. In such case, the most natural reaction is to sell the stock without investigating further.

The massive disposal of a stock will then lead to its price plunging. Likewise, the fear of loss also causes people to ignore bargain.

See the downfall of NOT doing any fundamental analysis?

Your mind have not information it needs to think clearly, and as a result, you tend to sell stocks in panic when prices crash.

Here’s a fact

When stocks price nosedive, the innate fear of losing in human will be triggered.

The self-defense mechanism then kicks in immediately.

People will suddenly become risk averse.

In addition, the exaggerated bad news cast over the media will result in extreme stress, further triggering the fight or flight response in that primitive reptile part of your brain .

When the emotions are combined with the herding mental shortcut (belief of following other people selling is safer than doing it differently), it leads to panic selling, as the depressed investors unwittingly allow their emotion to overcome rational thinking in the decision-making process.

This explains why the speed of stock price falling is much faster than that of its price rising.

This matter is compounded when most of the investors do not like to read financial reports; many of them do not even bother to understand the companies’ businesses

…and hence do not know the actual worth of the businesses when they bought the stocks.

They buy the stocks solely based on hype and hope that the stocks price will double in 12 months.

During economic crisis, when everyone rushes to sell the stocks and analysts also give strong sell recommendations; whatever you fear will be validated and therefore you will rush to liquidate their positions hastily to prevent further loss.

In a book titled The Little Book of Value Investing, Christopher Browne stated that

“Most people seek immediate gratification in almost everything they do including investing. When most investors buy a stock, they expect it to go up or distribute dividends immediately. If it doesn’t, they sell it and buy something else.”

This statement is further supported by Robert Cialdini that

“Quite frequently the crowd is mistaken because they are not acting on the basis of any superior information, but are reacting, themselves, to the principle of social proof.”

The myopia always leads to ignorance of the underlying business and overemphasis of short-term gain.

In summary, when the hot stocks lose their momentum and heading south, uninformed investors will be spooked by the selloff and tend to sell immediately at a loss.

Therefore, it is hardly surprising that most people have never even won a cent in their investments.