Fundamental Analysis

Fundamental analysis involves evaluating a business based on its financial statements and health, its management and competitive advantages in the context of its competitors, markets and the overall economy.  While technical analysts see the market as a voting machine the fundamental analysts see it as a weighing machine and use analytical techniques to evaluate current value and gain some insight into value evolution. These techniques are often applied to value investing where investors believe that revenue drives earnings, earnings drive stock price and management drives them both. This thinking underpins the investment philosophy espoused by Warren Buffett who has focused on finding outstanding companies at reasonable prices rather than generic companies at bargain prices.

Mere mortals make similar investment decisions but are probably more susceptible to the influence of emotion than the Oracle of Omaha. Sometimes investors consciously choose to invest unwisely to align investments with a personal philosophy (e.g., picking a "green" investment like Solentra) or avoid certain market segments (e.g., "sin" industries like liquor and cigarettes) in spite of the possibility of significant losses or the opportunity for lucrative returns.

And that's just getting into an investment. Where emotion all too often rules the day is getting out. Even with fundamental analysis and routine review it is difficult to be dispassionate when you see a company's fundamental performance fall and almost impossible to acknowledge that a favoured stock is in a death spiral. Investors get emotionally attached to their investments.

Sometimes it is the investor's needs that change. Young investors can tolerate high risk in their portfolio as they have time to recover from risky investments that don't pan out. Older investors may not be able to weather a business down cycle quite as well and may favour lower yield but more stable portfolios. Youngsters may eschew dividend income (if only due to tax impact) while the retired may rely on dividends as a key component of income. Investment needs change and portfolios must be adapted to those changes.

Most Dunwoody homeowners grew up being told that their home is their largest single investment. For many that is true. No matter when they purchased Dunwoody homeowners performed an analysis no matter how informal and determined at that time and for their objectives that the home they now own in Dunwoody was the best option for their needs. They analyzed the particulars of the home, the neighborhood and the overall community. They evaluated the HOA and the local government and the decided (based on their purchase) that Dunwoody was better suited than other competitive options. We're a city of smart people and that's what smart people do.

They made the investment.

Now things have changed--if they bought more than five years ago many things in the local community have changed and their original evaluation is no longer valid. It may also be that their needs and objectives have changed. Empty nesters do not need the Dunwoody Four Four and a Door and stairs are often unkind to older knees. They need to re-evaluate their holdings to determine if they have the right investment for their current needs. Every portfolio, even real estate portfolios, should be subject to regular (if not constant) review.

Often investors are reluctant to perform these reviews since it often becomes painfully clear that it is time to change one holding in favour of different holding. One that yields a better investing outcome or is just better suited to the investors' current needs. When it is your home, a home you had previously been quite happy with, it can be even more painful. But facts are facts.

Dunwoody has changed. It has a new government, some say better, some say nay. If you came here for "good schools" those are long gone and not likely to return. If you came for the parks you were simply misinformed. If you came here for low crime and a quiet lifestyle you now have The Mall. If it was convenient access to shopping and restaurants traffic has eliminated all hope for convenience.

Things have changed. It is time to take a cold analytical look at what Dunwoody is rather than dwell on what it once was. To evaluate what it may become, guess at the future trajectory and determine if that is a place you want to call home. You should be asking yourself "if I didn't live in Dunwoody already would I really want to move here?" and if the answer is "yes" you still have a sound investment. If the answer is "no" you should upgrade your portfolio.