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Are you an investor doing fundamental analysis?
Many individuals we talk to seem to consider themselves as investors and insist that they do fundamental analysis for stock picking. So, we decided to address these two topics in this column. Specifically, we discuss the difference between traders and investors and also show why most individuals may not be actually doing fundamental analysis.
It is generally argued that a trader has a short-term outlook whereas an investor has a long-term outlook. But how relevant is long term? Suppose your investments are down 20%. Of what use is an argument that equity generates good returns over the long-term if you need the money to fund your child’s college education three years hence? Whether you invest to achieve a life goal or to capture short-term movements in the market, your primary source of returns from equity is capital appreciation. That means you are exposed to market risk. Therefore, you are a trader, not an investor.