I started serious Investing Journey in Jan 2000 to create wealth through long-term investing and short-term trading; but as from April 2013 my Journey in Investing has changed to create Retirement Income for Life till 85 years old in 2041 for two persons over market cycles of Bull and Bear.

Since 2017 after retiring from full-time job as employee; I am moving towards Investing Nirvana - Freehold Investment Income for Life investing strategy where 100% of investment income from portfolio investment is cashed out to support household expenses i.e. not a single cent of re-investing!

It is 57% (2017 to Aug 2022) to the Land of Investing Nirvana - Freehold Income for Life!

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This blog is authored by an old multi-bagger blue chips stock picker uncle from HDB heartland!

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

"For the things we have to learn before we can do them, we learn by doing them." - Aristotle

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Wednesday, 29 April 2009

Fundamental Analysis - working very hardwork on it?

Guess-the-balls test

Hal Spacejock delivers a shipment of antiques, breaking several pieces in the process. His robot, Clunk, skillfully reassembles the broken furniture, and the grateful customer gives them a jar of ancient marbles.

This jar is 60cm (2 feet) high, with a diameter of 36cm (approx 14 inches). It is completely filled with marbles, each of which is 2.5cm (1 inch) in diameter.

Using that information... how many balls does Clunk have

If you use fundamental analysis, can you really work the number of balls (i.e. intrinsic value)? You work very hard, calculating this and that and try to work out the reasonable number and you think that this is the intrinsic value as you trust that it is completely filled with marbles.

But, you will never know what the Management has hidden inside the marbles? could be anything hidden to give you the impression it is completely filled.

Working very hard work on fundamental analysis may not actually pay off; unlike working very hard work on your job, your boss may recognise your effort and reward you.

Fundamental analysis is more towards Hygiene Factor, doing more of it may not really improve much but you can't ignore it either. E.g you need to brush your teeth 1-3 times a day for good oral hygiene, but brushing your teeth 4-10 times a day doesn't really help to improve much on your oral hygiene but it may be actually harmful to your gum. You definitely need to do some fundamental analysis but may not be wise to spend hours of hard work in digging out details. You will never know what was hidden inside the marbles.

Back to Guess-the-balls test, you do rough calculation and guess the number of balls, and you look at other players giving their numbers, and based on statistics and you may make some adjustment and you then bet your number. How? Lots of easier now?
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