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Identifying trends and value: FA and TA.

Saturday, December 26, 2009

When someone looks at a company's financial statements and says he thinks a company is worth $X, he is arriving at a value that the books tell him. This kind of FA is useful if we are doing comparison within the industry or just looking at how well the company is doing stand alone. It helps to determine if the company is a worthwhile investment in itself and if there are better companies to invest in within the same industry.

Now, if we wanna find the next big thing, FA alone is not enough. We need knowledge which is very insider in nature. Now, this does not mean necessarily being on the inside of a company but we have to be inside an industry or know the industry very well. There are also some very broad trends in the economy which are identifiable if we are in tune with the economic currents. All these are beyond standard FA.

For example, a friend of mine is thinking of selling their family business and they have had a couple of offers so far. Offer number one came from a business professional but the person looked at the books and gave a value which was considered too low. Offer number two came from a person in the same industry and was willing to offer twice the value!!! Offerer number two saw value which could not be seen in the books.

Basic FA can be quite easy once we get the hang of it, just like basic TA. But to go beyond the basics, that is a different ball-game. I would be very contented if FA constantly finds me good value and TA constantly helps me find good entry and exit prices.


Zzz said...

Hi, can i ask you which book or website you read to learn FA or TA? Thanks a lot.

AK71 said...

Hi Zzz,

I had some formal education in Economics and Financial Management. These help in FA. If you are referring to looking at companies' financial figures, look in the box at the top right hand corner of my blog. There's a book which explains how Warren Buffet looks at a company's numbers. That's a good one to start with and should be enough for most people.

For TA, I read two books in the Dummies series. You can find them in the same box in the top right hand corner of this blog. Very easy to read. I also learned a lot from reading articles written by Goola Warden, Darryl Guppy and Michael Kahn in The EDGE. I also learned from reading other people's blogs. A good TA blog is Time to Huat. The blog master is a friend who introduced me to TA. You can find Time to Huat in my blogroll "Investors and Traders".

It's good to keep an open mind and try different methods and find one that works best for you. :)

Anonymous said...

Hi AK71, I cant find the books you are referring to. Can you please help to intro a book which for new investor as me can learn abit of TA and know when is the entry point and exit point. Thanks!!

AK71 said...

Hi Anonymous,

Oops, I removed that box some time back. I have put it back up for you. Take a look. :)

Could you include your name or initials in future comments? Thanks.

AK71 said...

Hi Anonymous,

I remember why I removed the widget now. It causes my blog to load very slowly. So, I am removing it again.

I hope you have had a chance to look at the books I was referring to as the widget was put up again for more than 24 hours. :)

success8trading said...

Hi AK71,

I have been following your blog for a while. Very informational and I like your blog a lot. I am also interested in knowing which books that you have read. Do you mind uploading the widget again? Hope you won't mind. Thanks a lot :)

AK71 said...

Hi success8trading,

The widget (from Amazon) really slows down the loading of my blog. So, it's gone for good.

I would recommend two books which I found particularly useful:

For FA:
"Warren Buffett and the Interpretation of Financial Statements" by Mary Buffett and David Clark

For TA:
"Technical Analysis: Plain and Simple" by Michael Kahn

I hope you find them useful like I did. Thanks for visiting my blog. :)

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