Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
While fundamental analysis involves the analysis of the business behind a stock, quantitative analysis is more concerned with just the company numbers. This type of analysis is used to narrow down the choices of stocks to invest in based on numbers rather than how those numbers apply to a company. For example, some investors may use quantitative analysis to narrow down their choices based on the market capitalization of the companies. In this scenario an investor may only be interested in large-cap companies with a certain dividend yield, while another may have an interest in micro-caps with a certain growth rate. This information is generally fed into a computer as input, and the output maybe a handful of stocks for the investor to pick from. This is sometimes referred to as screen-based analysis, where the computer is used to screen out stocks based on certain criteria, known as a screen. The idea is simple. Once a screen has demonstrated itself capable of picking winners, it could be used over and over to pick winning stocks. It is kind of like a snowball effect. The more a screen proves its effectiveness, the more popular it becomes. And it's easy to use. Every so often you feed the same screen to your computer, invest in the stocks that come up, collect the profits, and repeat the process.
The problem with quantitative analysis is just that: it is quantitative not qualitative. You are investing in companies based on their numbers, and not based on their business fundamentals. More often than not quantitative analysis would miss a great stock in favor of a poor one. Quantitative analysis is not a favorite of mine and it is no substitute for quality fundamental analysis, but many investors swear by it. Should you be interested in getting involved in quantitative analysis and screen-based investing, there are a number of companies offering software and services to do just that. …
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