Bottom-Up Investing

Finance a la shmoop what's the difference between a chartist and a

fundamental analyst? okay here's Bob the trader no relation to Bob the Builder [Bob the builder appears]

that is literally his name Bob the trader his parents were bearish on

social security ever really being there for him so you know Bob the trader was

their social security sort of how things work in China today they bet the ranch [Ranch appears]

on Bob and Bob makes bank by trading stocks for silverman slacks Partners on

Wall Street he makes ten million bucks a year by

looking at charts and trading patterns like ascending triangles and double [Trading patterns appear on sheets of paper]

bottoms we cannot lie and triple top like that obB is a chartist and really

kind of an astrologist too and well just kind of weird but he's rich so people [Bob carrying stacks of money]

call him eccentric well Bob the trader is basically the opposite of a

fundamental analyst how so well Bob the trader knows and cares almost nothing

about the companies behind the stocks he trades, he doesn't know what they do for

a living or what their earnings are or what they manufacture or what their

profit margins are or what their gross rates are or who runs them or even how

you spell their corporate name.... well Bob just knows that this week the

stock appears to be starting a major break out and he wants to bet big by [Break out appears on grading patterns]

being long the stock either by owning it or by owning call options with a strike

price right up around here okay so that's Bob the trader all right now meet

Izzy the investor and yep you guessed it that's her real name would have been [Isabel as a baby with her parents]

Isabel but well same deal on the parents and the social security bearishness

thing..Izzy the investor is her parents social security she too makes ten

million dollars a year on Wall Street only she makes like three trades a year

Bob the trader makes that many in an hour

Izzy the investor is a fundamental analyst or a fundamental investor so she

makes big bets on a concentrated handful of stocks which then represent the

investment portfolio she manages and is evaluated again it's like relative to

some index like the S&P500 five hundred so what does a fundamental

analyst care about other than having fund she looks at everything that

comprises real and tangible or meaningful value in a company like all [Man discussing fundamental analysts]

the stuff we described earlier mainly well, the cash it produces or will

produce in the future like if she's paying a hundred bucks share for a stock

what financial returns or value do you get for that stock? ten bucks in real

cash earnings a six percent dividend how our profit margins are they trending up

or down? what about revenue growth our revenues

in fact growing and what about management do they get the biz or are

they just in the rolls for a you know investment bank or golf well how does

the company manage its cash does it buy back stock how well does their product

mesh with the future like are they making operating systems for robots or

paper and pulp so yeah that's what a fundamental analyst does they pick [Stock transfers to Izzy]

stocks using the fundamentals that make up the value of the stock and they really

don't care a whole lot about the charts and yes the key thing is that they get

down to the fundamentals of what makes a company tick especially if that company [Izzy sitting in office and clock ticks]

makes clocks for a living