Introduction
Investing requires skill, not chance, to win. Making sound and profitable decisions requires careful planning, research, and analysis. However, the market is not static but a dynamic and complex system that is constantly changing and evolving.
How can investors keep up with the demand and adapt to its fluctuations? How can they find the best opportunities and avoid the worst pitfalls? How can they achieve their long-term financial goals and secure their future? The answer is market research in long-term investing.
In this article, we’ll look at in-depth market research in long term investing and how it can help you make more informed investment choices.
What is Market Research and Analysis?
Market research and Analysis is the mechanism of gathering, analyzing, and interpreting information about a specific company and its related industry. It is an essential tool for investors who want to succeed in the long run.
Market research and analysis can help investors to understand the industry dynamics and competitive landscape of a market, find undervalued or overvalued stocks in a market, diversify their portfolio and reduce their risk exposure, and stay updated and informed about the market conditions and events that can affect their investments.
Market research and analysis is not a one-time activity but a continuous learning process. It requires curiosity, critical thinking, and open-mindedness. It is not a guarantee of success but a way of increasing the chances of making wise and profitable decisions in the long run.
Importance of Market Research in Long term Investing
The role of market research in long-term investing is a fascinating topic. Market research can help investors to identify opportunities, trends, risks, and customer needs in a specific market. Market research can also help investors evaluate their current investments’ performance and make informed decisions for the future.
Some of the benefits of market research for long term investing are:
– Market research and analysis can help investors understand a market’s industry dynamics and competitive landscape. For example, market research can help investors to assess the impact of technological innovations, regulatory changes, environmental issues, social movements, and consumer preferences on the market.
– Using various methods and tools, market research in long-term investing can help you estimate a stock’s intrinsic value and compare it with its market price. This can help them to spot potential bargains or avoid overpriced stocks.
– Using technical research and fundamental research, you can identify different asset classes, sectors, regions, and strategies offering different returns and risks. You can monitor the performance of your portfolio and adjust its allocation according to its goals and risk tolerance.
– Market research in long term investing can help you to stay updated and informed about the market conditions and events that can affect your investments. You can anticipate future scenarios and opportunities based on historical data and projections.
What is Fundamental Research and Technical Research?
To simplify fundamental research and technical research, let us consider that you want to buy a car. How would you decide which car to buy? You might look at different factors, such as the price, the brand, the features, the performance, the safety, the reviews, etc. These are the fundamental aspects of a car that determine its value and quality. This is similar to fundamental research in investing.
Fundamental research analyzes the intrinsic value and quality of a company or a sector based on its financial statements, earnings, growth, competitive advantage, industry trends, etc. Fundamental research can help investors to find undervalued or overvalued stocks and to make long-term investments.
However, you might also look at other factors, such as the demand, the supply, the popularity, the trends, etc. These are the external aspects of a car that determine its market price and movement. This is similar to technical research in investing.
Technical research analyzes the price patterns and movements of a stock or a market based on historical data, charts, indicators, trends, etc. Technical research can help investors to identify entry and exit points and to make short-term trading decisions.
Fundamental and technical research are essential tools for investors wanting to succeed in the market. Fundamental research and technical research are not mutually exclusive but complementary.
Key Indicators Used Fundamental Research
One market research method in long term investing is “Fundamental Analysis”. Let us go over some of the quantitative indicators used to analyze the financial health and growth potential of a company-
Earnings per Share (EPS): This is the percentage of a company’s profit given away for each share of stock it issues. Growing EPS is a good sign for investors because their shares will be worth more.
EPS = total profit/number of outstanding shares.
Price to Earnings Ratio (P/E): This is the ratio of a company’s current stock price to its earnings per share. It’s a measure of the company’s valuation.
P/E = Price of stock/Earnings per share
Price to Book Ratio (P/B): A company’s current stock price is compared to its book value per share. The total value of one’s assets, less liabilities, is its book value. It’s a measure of how much investors are paying for the company’s net assets.
P/B ratio= Price of Stock/Book value of the stock or company
- Return on Equity (ROE): How much net income a company generates for each unit of shareholders’ equity. Shareholders’ equity is the total value of a company’s assets minus its liabilities and preferred stock. A high ROE means a company is efficient and profitable, while a low ROE implies a company is inefficient and unprofitable.
ROE= Net income of the company (Total Revenue- Total Expenses)/ Shareholder’s equity
Key Indicators Used in Technical Research
Market research in long term investing can also be done using technical analysis indicators. Such indicators are broadly divided into four categories-
- Trend indicators: These indicators show the direction and strength of the price trend. They can help you to spot uptrends, downtrends, and sideways movements. Some examples of trend indicators are moving averages, trend lines, and Ichimoku Cloud.
- Oscillators: These indicators show the momentum and volatility of the price movements. They can help you to identify overbought and oversold conditions, divergence and convergence signals, and reversal points. Some examples of oscillators are relative strength index (RSI), and moving average convergence divergence (MACD).
- Volume indicators: These indicators show the amount of trading activity in a security or a market. They can help you measure traders’ interest and participation in a price movement. Some examples of volume indicators are on-balance volume (OBV) and Chaikin money flow.
- Support and resistance indicators: These indicators show the levels where the price will likely face difficulty breaking through or returning from. They can also help you to gauge the supply and demand forces in a market. Some examples of this indicator include pivot points, Fibonacci retracements, and Bollinger Bands.
Challenges and Limitations of Market Research in Long term Investing
Some of the challenges for conducting market research for long term investing are:
- Time-Consuming: Market research can be time-consuming and costly. Collecting and analyzing large amounts of data from different sources may require a lot of resources and expertise.
Market research can be biased or inaccurate. It may be influenced by the researcher’s assumptions, preferences, or expectations. It may also be affected by the data sources’ quality, reliability, or relevance.
Market research can be outdated or irrelevant. It may not reflect the current or future market conditions or events that can affect the investments. It may also not account for the unpredictable or unforeseen factors that can influence the market.
Key Takeaways
Market research in long term investing is crucial to pocket good returns as it helps break down complex market data and trends into simpler bits. It gives you a clear perspective of the risks and benefits of the investment you are about to put your hard-earned money into.
Market research and analysis help you make decisions by providing unique insights into the company, but it is much more than a simple Google search. If you are an avid learner, you can develop these skills over time. But, if you are a beginner in investing, you can seek professional help from a reliable investment advisory like Research and Ranking.
FAQs
Which strategy Works Best for Market Research in Long Term Investing?
This question has no definite answer, depending on your goals, preferences, and available resources. There are different methods and sources that you can use to conduct market research for long term investing. Fundamental research generally works best for long-term investment because it gives you an idea of the company’s worth and future possibilities.
How can I conduct market research in long term investing?
Before planning your long-term investments, you can use various technical and fundamental research tools to study the markets. You can use financial analysis, valuation models, ratio analysis, and peer comparison, market research to estimate the intrinsic value of a stock and compare it with its market price.
What are some of the challenges and limitations of market research for long-term investing?
● Market research and analysis can be time-consuming. Collecting and analyzing large amounts of data from different sources may require a lot of resources and expertise.
● Market research can be biased or inaccurate.
● Market research can be outdated or irrelevant.
Read more: How Long-term investing helps create life-changing wealth – TOI.