Qualitative Analysis

Categories: Metrics

See: Fundamental Analysis.

When quant analysis is your only guide to investing, you're likely missing the total picture from 37,000 feet. Quantitative metrics (and all the other goop that goes into that mix) is somehow processed by an algorithm set up by an investor guru, and then the black box tells the portfolio manager what to do or not do...or just automatically invests the dough.

Quant analysis is all about the numbers, but as applied in two arenas. That is, one set of quant metrics looks at trading patterns and volumes and shapes of charts, almost like a Rorschach Test, where you see a flying elephant with a large, um...trunk. So that's the trading pattern quant zone. The other zone is a quant approach to the fundamentals of the company. Like, how fast is revenue growing relative to the industry or the market in general? How are margins doing? Free cash? Debt paydown? Something else?

It all comes together at the end with a buy, sell, or hold, and, well...that's what makes a market.

Related or Semi-related Video

Finance: What is Fundamental Analysis?6 Views

00:00

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

00:06

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

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

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

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

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

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Wall Street he makes ten million bucks a year by

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Bob the trader makes that many in an hour

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

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

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

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

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

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

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

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

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

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

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or down? what about revenue growth our revenues

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

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

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

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

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

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

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

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

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makes clocks for a living

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