Fundamental vs Technical Analysis (& How To Use BOTH of Them to Invest)
Disclaimer: I do not claim to be an expert in any of the methodologies mentioned in this article. This article is just my general opinion on FA and TA, and should not be treated as Buy/Sell call by any means.
One of the most interesting discussion, when I get to meet stock investors, is definitely one’s application of Fundamental Analysis (FA) or Technical Analysis (TA) in investing – and which is better.
While there is no right or wrong answer to this discussion (of which, sometimes turn into a debate), I thought that maybe I can share my 2 cents on this matter in this article:
First Thing First: What is Fundamental Analysis (FA), and What is Technical Analysis?
FA and TA are essentially 2 different schools of thoughts when it comes to investing. Simply put, they are two different approaches towards achieving the same financial goal in investing – to profit from our investments.
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Fundamental Analysis (FA)
FA is an approach used by investors to identify the underlying intrinsic value (a.k.a. the real worth) of a company or stock via studies on industry and company’s data & financial statements, economic cycle and seasonality and more.
Ideally, investors that use FA aim to invest in a company while its shares are being sold at a price lower than its intrinsic value. As such, investors will then profit from the dividend returns and when the price of the shares increases down the line - a.k.a. Value Investing.
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Technical Analysis (TA)
TA, on the other hand, is another approach towards investing via the analysis of price charts. Through price charts, investors are able to identify important details such as the price trend and the momentum of a company's price.
From that, investors will be able to gauge their ideal entry and exit price.
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So…Which Approach is Better?
Simply google for this topic and you will get a lot of heated debate between pure FA and TA investors criticizing the approach by the other party – and for good reasons.
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The Problem with FA
For one, while FA takes into account of various data from financial statements, economic outlook and cycles and, heck, even project future growth with projection models, it CANNOT run away from making underlying assumptions (eg. Assuming X% growth annually, Assuming company X gets this government contract…).
Meaning, assumptions made MAY or MAY NOT come true – hence affecting the outcome of a particular investment decision.
In addition, buying into undervalued stocks with high intrinsic value DO NOT mean that your investment will increase in value the next day (psst..it may take years).
Reason being, the market (reaction between buyers & sellers) is not rational, and may not reflect the underlying intrinsic value of a stock’s price. As such, for certain investing decisions made purely on FA, it will take a lot of patience for things to work out in one’s favor.
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The Problem with TA
On the other hand, the use of TA is widely subjective on 2 underlying elements: time horizon and techniques. Let me explain:
The time horizon of an investor when it comes to TA can affect one’s view on the market for a various degree. As an example, a long-term investor (5 – 10 years) may look into the below chart and have a bullish (a.k.a. positive) view on a particular stock, yet a shorter-term investor may have a bearish (a.k.a. negative) view on the stock.
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Another thing when it comes to TA is that there are so many different methodologies (Price Action, Turtle, Ichimoku, Elliot Wave, etc.) and indicators (MACD, RSI, Bollinger Band, etc.) out there, it is almost impossible for all TA investors to come into agreement for one particular set of price chart.
Why Do I Use Both FA and TA in Making My Investing Decision?
So far, it is not hard to see both the strengths and weaknesses of each approach when it comes to investing:
FA enables us to study a company inside out via financial data and economic/industry outlook, yet lack the precision needed for investors to enter the market.
On the flip side, TA allows us to look into price charts and time our entry into the market with the help of price action and indicators. However, TA methodologies could be different depending on who’s using them, hence making it very subjective.
But hey, WHY NOT leverage on the strength of both FA and TA to improve our overall investment decision?
As in, WHY NOT leverage on FA to help analyze a stock inside out and obtain its underlying intrinsic value (which TA lacks), and apply TA to assist us in our entry into the market (of which FA is weak in)?
Make (a lot of) sense?
Example
A very common way of identifying if a REIT’s intrinsic value is through comparing a REIT’s market place against its Net Asset Value Per Unit (NAVPU). Generally, a REIT that is sold at a market price less than the NAVPU is considered undervalued.
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Now, considering that due-diligence has been done and given that YTL REIT has a NAVPU of RM1.606 – meaning, rationally, this is where the market should price YTL REIT in an ideal scenario. Yet, on the price chart below, even at an obvious upward trend, market is still pricing YTL REIT (RM1.38) way below its NAVPU of RM1.606.
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In general, as an investor that purely use FA in his/her investing decision, any price below intrinsic value would be a decent buy. However, one may find it challenging to identify a relatively better entry without the use of TA. (eg. While buying at an all-time high of RM1.38 is still a fundamentally lower price, yet wouldn’t it be better if you are able to enter at, say, RM1.20?)
Now, after using FA to identify undervalued stocks, I’ll normally apply one simple TA method call Moving Averages (MA) cross (refer to picture below). This method would help me identify trend changes on price charts:
Simply put, when the 50-Days MA (Green line) crosses above 150-Days MA (Yellow line) and both MAs are sloping upward, it would signify an uptrend movement and would be an ideal entry point for me.
Therefore, even when YTL REIT is valued below its intrinsic value (RM1.606), with a simple TA method, I can identify a relatively better entry. This is a better gauge for entry for sure, if you were to ask me.
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No Money Lah’s Verdict
So here you go! This week’s article goes a little more in-depth about investing methodologies and approaches, and I genuinely hope that you learn or gain something out of this!
With that in mind, if you find this article useful, do consider SHARING this article out, and be sure to subscribe for more value-adding content from No Money Lah!
5 MUST-KNOW Terminologies Before You Invest in REITs
Real Estate Investment Trusts (REITs) are essentially companies that operate and/or manage real estates. REITs are especially well-received among long-term investors that are looking for a reliable passive income stream.
To invest in REITs is identical to typical stock investment – you buy their shares through your stock broker.
That said, here are 5 terminologies that you HAVE TO know before investing in REITs:
(1) Distribution/Distribution Per Unit (DPU)
Distribution is one of the MOST IMPORTANT elements in REIT investing. Essentially, distribution refers to the total amount of money that a REIT is paying back to its investors at the end of every quarter or Financial Year (FY).
As such, take the total distribution of a REIT and divide by the total number of shares of a REIT, and you will get the Distribution Per Unit – a.k.a. the total amount of distribution you will get as one unitholder of a share in the particular REIT.
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(2) Dividend Yield
Compared to Distribution/Distribution Per Unit, Dividend Yield is much more familiar to people.
In short, Dividend Yield is derived from Distribution Per Unit (DPU) – by dividing DPU with the price per unit of a REIT.
From the example above, the Dividend Yield of SunREIT for its latest four quarters is:
(3) Net Asset Value (NAV)/Net Asset Value Per Unit (NAVPU)
Net Asset Value shows the total worth of the net assets of a REIT.
When divided by the total shares (or units issued) of a REIT, you will get the value of Net Asset Value Per Unit (NAVPU), a.k.a. the total value of the net asset of a REIT per share.
NAVPU is very useful to determine if a REIT is undervalued or overvalued. As an example, if the price of a REIT is less than NAVPU, it shows that a REIT is currently market-priced at a value less than the worth of the net asset of the REIT (undervalued).
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(4) Gearing
Gearing refers to the leverage of a REIT. Essentially, it refers to how much is the total debt of a REIT in relative to its total asset.
Generally, a REIT is legally required to maintain a Gearing of 50% or less.
(5) Occupancy Rate
Occupancy rate is extremely crucial to determine if a REIT is going to earn money. Simply put, the more tenants that occupy a REIT's property, the higher the occupancy rate of the property.
Generally, we should want to look for REITs that have a high occupancy rate for their real estate portfolio:
No Money Lah’s Verdict:
So that’s it! Here are 5 terminologies that you MUST KNOW while investing in REITs. While this is a short and simple article, yet if you are new to REITs, I definitely hope that you find this article informative!
If you find this article useful, do share this article out to benefit more people around you! Also, do check out my articles on WHY you should invest in REITs, and the different TYPES of REITs in the market (and why they matter!)
What is Amanah Saham & How to Invest in it? (Part 1)
I have never paid much attention to Amanah Saham investment until a recent request from a reader to write about it sometime back in May.
In fact, my initial impression towards Amanah Saham was that most of its funds are for Bumiputras, and funds that are open to the public are very hard to buy – and that was everything I knew. But thanks to the request from that reader, I have found myself researching about arguably one of the most reliable investments that give a very solid return.
Without further ado, let’s find out more about Amanah Saham!
What is Amanah Saham?
Amanah Saham are funds that are managed by Amanah Saham National Berhad (ASNB), a subsidiary of Permodalan Nasional Berhad (PNB). ASNB was established on 22 May 1978. In short, ASNB is a government-supported unit trust management company.
Fixed Price Fund vs Variable Price Fund
As of the time of writing, there are a total of 14 Amanah Saham funds under the portfolio of ASNB, and of all, there are 6 Fixed Price Funds and 8 Variable Price Funds:
(A) What’s the difference between Fixed Price Funds and Variable Price Funds?
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Fixed Priced Funds |
Variable Priced Funds |
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| Value | Fixed @ RM1/unit. | Varies according to the market. |
| Sales Fee | 0% | 3% - 5% |
| Performance | Consistent (6%-7%) | Fluctuating |
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To give you a better picture, just take Variable Price Funds just like the conventional mutual funds in the market. As the name suggests, Variable Price Funds are funds that will fluctuate in value in accordance with the market movement. In terms of fees, Variable Price Funds also charge sales fees between 3% - 5%.
Simply put, for your Variable Price Fund investment to match the return of a 3% Fixed Deposit (FD) rate, your fund’s return will need to be at least 6% (assuming a sales fee of 3%) – which I wouldn’t recommend putting your hard-earned money in considering the inconsistent performance of all Variable Price Funds for the past 3 Financial Years.
On the other hand, ASNB’s Fixed Price Funds are the ones that everyone is talking about. The key strength of Fixed Price Funds (well, you have guessed it, didn’t you?) is the value of the fund will be fixed at RM1/unit no matter the market condition. Not only that, there is also no sales fees (yes, 0%) charged by all 6 Fixed Price Funds.
The best thing? All 6 Fixed Price Funds have been paying an average 6%-7% dividends consistently for many years, making them one of the most reliable investment vehicle in the market.
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(B) All hail, Fixed Price Funds! (Benefits)
For all the reasons above, I will discuss specifically on Fixed Price Funds as these are what everyone is talking about when it comes to Amanah Saham investment.
Personally, I am genuinely happy to see that out of the 6 Fixed Price Funds, 3 (ASM, ASM 2, ASM 3) are actually open to all Malaysians, and I was delighted for good reasons:
#1 Unit value is fixed at RM1/unit:
Meaning, any market fluctuation will not affect the fundamental unit value of these funds. In other words, in the instances where the market is so bad that there is no dividend payout at all, at least the value of your fund will remain constant.
This makes Fixed Price Funds stand out as one of the best Unit Trust investment available in the market.
#2 Consistent Dividend:
Fixed Price Funds are famous for good reasons. One of them is because they are able to deliver a solid and consistent performance for a long period of time.
From my research, all 6 funds are able to deliver an average of 6% - 7% return on a consistent basis for the past 5 financial years (More about their performance on Part 2).
A consistent 6% dividend, when reinvested (which these funds do), will bring you a massive compounded return over a long period of time.
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#3 Dividend Earned is not Taxable:
So you do not have to worry about tax filing.
#4 No Sales Charge:
Another highlight feature of Fixed Price Funds. Meaning, you do not have to pay any sales fee if you purchase any new units.
That said, Funds have full discretion to charge a 1% sales fee – just saying.
#5 On-The-Spot Redemption:
You can withdraw your investments and get your money immediately (either via cash/cheque/bank transfer).
(C) Risks & Cons of Amanah Saham investment (Fixed Price Funds)
One thing that we have to keep in mind is that there are no investments that are 100% risk-free. Here are some of the risks and cons of investing in the Fixed Price Funds of ASNB:
#1 Market Risks and Interest Rate Risk
All Fixed Price Funds’ performance and return are subject to the fluctuation of the market and interest rate.
While it is true that the unit value remains fixed at RM1/unit, dividend payout may fluctuate in accordance with funds’ exposure market and interest rate fluctuation.
#2 Capital not Protected
Your capital is not protected by Perbadanan Insurans Deposit Malaysia (PIDM) if ASNB goes bankrupt.
#3 Availability of Funds
As there is a quota capped to our race to these funds, when the quota is fully filled, you will have a hard time trying to get into these funds (unless suddenly someone let go of their units).
#4 Withdrawal Hassle
Any withdrawal of funds must be made over the counter at ASNB’s branches.
How to Register for an ASNB Account?
To register for an ASNB account, you must bring along your IC and the minimum cash needed for the initial subscription for the funds (RM10 for Fixed Price Funds), and apply at any ASNB branches or agents.
No Money Lah’s Verdict
In my opinion, I honestly think that if you can get your hands into any of ASNB’s Fixed Price Funds, it is no doubt one of the best money decisions that you will ever make, period.
For myself, I will go and open my ASNB account and start trying my luck to get my hands on any of these funds, and I will keep you all updated on my experience (so stay tuned and subscribe if you haven’t already!)
In Part 2, I will introduce and go through the performance of all 6 Fixed Funds with you, so you can decide which one to invest in after that! As for Part 3, I am going to share my personal view on Amanah Saham investment (plus my rants - you gotta check it out!).
Have a good read!
Disclaimer: The accuracy of this content is based on the best effort by myself and at the time of writing. I do not guarantee the validity of this content as details and performance of ASNB and its funds will change over time. This article is also not a buy/sell recommendation. Please seek professional financial planner's advice on this matter.
Credits to MyPF and MyFinTalk for their comprehensive writings on ASNB!
Note: For all my Bumiputera friends and readers that may be asking about to buy into Amanah Saham via cash or ASB Financing, definitely check out the articles by Crezki & KC Lau for more tips and info!