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Fundamental analysis is the process of analyzing actual and anticipated demand and supply data to forecast the direction and magnitude of a future price movement in the market. The following article is mainly based on Van Tharp's book "Trade Your Way to Financial Freedom".
An Introduction to the Use of Fundamental Analysis
Fundamental analysis can be useful in many ways, for example, it can help investors to estimate the ‘fair value’ of a financial asset. By comparing ‘fair value’ to the market value, investors can understand how attractive an investment position is. Additionally, fundamental analysis can facilitate price targeting by providing a general idea of where the market is heading, and whether you should make a quick profit or hold an asset for a significantly higher price objective.
- Fundamental analysis is the key tool for determining ‘fair value’
Read more: Exploring Fundamentals and the Advice of Guru Equity Investors
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RUSSEL 2000 (US SMALL CAP ^RUT)
Russell 2000 is one of the most popular benchmarks for small-cap stocks. It is widely used by many mutual funds and ETF investors.
The Index
Russell 2000 (^RUT) is a stock market index that measures the performance of the 2,000 small companies listed in the Russell 3000 Index. Russell 2000 serves as the leading benchmark for institutional investors around the globe.
Key Takeaways
- The index started in 1984 and it is managed by FTSE Russell
- Russel 2000 is the most common benchmark for "small-cap" mutual funds
- The index includes about 2,000 small-cap companies
- The Russell 2000 is a subset of the Russell 3000 Index (includes about 96% percent of the investable US markets)
- Investors can invest in the Russell 2000 via index ETFs or Russell 2000 index mutual funds
- Traders can trade Russell 2000 through futures contracts or CFDs
Chart: Russel 2000 historical chart (6-month candles)
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Started in July 1988, the DAX-40 is a capitalization-weight index that includes major blue chip companies trading on the Frankfurt exchange.
- DAX conists of 40 large companies trading on the Frankfurt Stock Exchange
- DAX is well diversified across different sectors of the economy
- 37 of the listed companies are domiciled in Germany, 2 in Netherlands, and 1 in the United Kingdom
- It is a total return index using the "capitalization-weighted" as its weighting method
- Prices are tracked via the Xetra trading venue
- Until 2021, the listed companies were 30, and DAX was known as DAX-30
- Related indices include MDAX, TecDAX, SDAX, and ÖkoDAX
- In 2022, the DAX-40 total market cap was 1.6 trillion euro
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The Standard and Poor's 500 or else S&P 500 is a float-adjusted capitalization-weighting index that includes 500 large-cap US companies listed on NYSE or NASDAQ.
Begun in 1957, the S&P 500 is maintained by S&P Dow Jones Indices.
- The S&P 500 index is a free-float weighted/capitalization-weighted index
- S&P 500 covers about 80% of the available market capitalization
- S&P 500 companies are publicly listed on either the New York Stock Exchange or NASDAQ
- As of mid-2021, the nine largest listed companies on the S&P 500 accounted for 28.1% of the total market capitalization
- The listed companies on the S&P 500 index are selected by a committee (the requirements are listed below)
- Related indices include S&P Global 100, S&P GLOBAL 1200, S&P International 700, and S&P/TSX 60 Index
- Ticker symbols include $SPX, US500, GSPC, INX
Short-History
In 1923, Standard Statistics Company began rating mortgage bonds. Later, in 1926, they created a 90-stock index. In 1941, Standard Statistics Company merged with Poor's Publishing and formed Standard & Poor's.
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The Dow Jones Industrial Average, or DJIA, or Dow 30, or just Dow is one of the most important world financial indices. The Dow Jones Industrial tracks 30 large blue-chip companies trading on the New York Stock Exchange (NYSE) and Nasdaq. It was founded on May 26, 1896, and today, it is owned by the CME Group.
- Dow 30 follows the daily fluctuations of 30 large publicly-owned US companies
- Exchanges include the New York Stock Exchange and NASDAQ
- The weighting method follows the 'Price-Weighted Index'
- Trading symbols include US30, DJI, and DJIA
- The Dow is named after Charles Dow, who created the index along with his partner Edward Jones
- After the Dow Jones Transportation Average (DJTA), the DJIA is the oldest market index in the US
► Official WebSite | ► CME Group
