How important is fundamental analysis, you wonder? These three men turned in massive profit by relying on fundamental analysis, here's their story.

Fundamental analysis, some said it's as fuzzy as myth. To some extent, retail traders completely forgo hottest economical headlines as their reference and rely entirely on fully docked indicators and chart patterns as their bread and butter. However, did you know that these 3 men made massive fortunes mainly through fundamental analysis?

Fundamental analysis stresses over trader's awareness on evaluating intrinsic value of any financial instrument. Armed with that knowledge, he/she can measure how far mispricing have streched away from its intrinsic value. They can reap massive amount of profit based on demand-supply law where prices will be corrected back to its intrinsic value.

Found it hard to believe? Read these 3 legendary traders testimonials!

 

Their View On Fundamental Analysis

Fundamental analysis had been the forefront of professional trader even before technical analysis became popular. Mispricing often happened due to news distribution factor where not all traders can get access of latest actual economic updates. In that situation, it's not uncommon to notice skewed price of a financial instrument.

A professional fundamentalist will analyze intrinsic value of that skewed financial instrument and hold their position against it (buy the dip, sell the rally) until it retraces back to its intrinsic value.

Without further ado, let's introduce all those 3 legendary traders and what's their view about fundamental analysis:

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1. Benjamin Graham, from where it all began

The issue of intrinsic value vs. mispricing has been exhaustively scrutinized by one legendary trader, Benjamin Graham, on his books Security Analysis in 1934 and the Intelligent Investor in 1949. Both of those book are still available in bookshops up to this day as one of the best classic investing references.

He postulated that prices on stock market are prone to mispricing, and hardly reflect intrinsic value of said public corporate. Even though it still remains controversial, more often than not it is self-evident in form of suspected insider trading seeking unreleased news from corporate's agents.

Which is why you should be wary when prices suddenly shot up or plunged down. As a smart trader, you should analize with fundamental analysis whether those fluctuative price changes actually reflects its intrinsic value or only temporal skewed mispricing.

 

2. Warren Buffet, still among the richest man alive

An acorn doesn't fall far form its tree. Warren Buffet derived his fundamental analysis principles from his teacher, Benjamin Graham. Both legendary traders stressed the importance of fundamental analysis to asses intrinsic value of a financial instrument.

Warren Buffet reaped massive profit annually, mostly from his fundamental analysis principles, Value Investing. He applied his trading principles to spotlight hidden gems for his investing schemes.

Those hidden gems usually could be found in the form of unpopular publicly traded company with low P/E and P/B ratio, but posessed many other untapped potential assets. In such case, the share price of those hidden gems often sloped down after their IPO period have passed.

In that moment, Warren Buffet would buy shares in large volume where other ordinary traders would have sold shares of that hidden gems. He took that seemingly counterintuitive trading decisions in respect of his fundamental analysis where the intrinsic value of said public company is much higher than its listed price (on an exchange).

He gained prolific returns for his effort by buying cheap shares in large volumes as the public company's market value increased over time.

As a retail trader, you'd face difficulties in mirroring Warren Buffet's investing decisions due to capital margin. Alternatively, you can buy his company's share (Berkshire Hathaway, Nasdaq: BRK.B) or invest to hedge funds that mirror Buffet's decision.

 

3. George Soros, the man who broke Bank of England

If you have been trading forex for some time, chances are you have already familiar with this legendary trader's name, George Soros. One of his major achievement in Forex market was Black Wednesday where he successfully pocketed around USD 1 billion dan forced BoE (bank of England) out of ERM mechanism (the predecessor of Euro).

George Soros trading insights lies in his application of reflexive theory where he detected a critical point of a nation's economic bubbles. The faster a nation expanded far away from its fundamental capacity, the bigger its chance of entering recession. You can recall that phenomenon in 2007, where housing bubble dragged down US into recession.

Reflexive theory shared its root with fundamental analysis. Mispricing in forex market most often took place around major impact economic news. With reflexive theory, a professional trader can filter out noises from that news release with fundamental analysis.

 

Conclusion

Technical analysis recently rose in popularity due to its easily accessible guide on various technical indicators dan graphical patterns. Subsequently, more and more beginner traders prioritizing learning technical analysis over fundamental analysis. As they said, learning fundamental is difficult and complicated, let alone applying it in live trading.

Even so, fundamental analysis can't be separated from long-term or short-term trading analysis. Why? Because a trader can only garner awareness about intrinsic value vs. bloated figures exclusively from fundamental analysis.