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MENTORING - Fundamentals - Stock fundamentals - Coggle Diagram
MENTORING - Fundamentals - Stock fundamentals
A company and a stock are related but are not same. They are related through the balance sheet.
A company is sitting in its headquarters, while a stock is sitting on a stock exchange. That means a company is driven by the forces driving the sector, management, economy, and others that affect its business.
A stock is affected by the company, stock exchange, buyers and sellers of stock and all the players on the stock exchange.
The drives behind a company and the drivers behind a stock are not one and the same. The drivers of a company affect affect the stock but not vice versa.
Thus the fundamentals driving a company and the fundamentals driving a stock are totally different.
So we have to track the fundamentals of both the company and the stock to know what stock to pick and what not to pick.
Bottom line: A stock is affected by company fundamentals and stock fundamentals. A company is affected mostly by company fundamentals. Occasionally the reverse too happens but rare and not much.
The point is as a trader you should analyse both stock fundamentals and company fundamentals before you start trading a stock.
There are three ways someone can buy or sell a stock. (a) directly from or to the company; (b) through the stock market but directly through other players; (c) through the open market.
Buying or selling is not a problem for smaller players, like retailers and small capital people. But for those who can move the market, it can be a headache to buy or sell. That is why they take one of the above three approaches.
The first method is called private placement where the company will directly sell the shares to the investor in bulk. For this, either it will take the shares from the
treasury account
or from the authorised share capital.
In a private placement there is no difference between a company fundamentals and stock fundamentals. The investor has directly taken from the company.
The second way to get exposure to a stock is through a bulk deal or a block deal, which the sell side bank executes with ease.
The second method is opted when the company rejects a buyers offer price.
The first method does not affect the market price unless the deal price is very far.
The second one affects the market price. This is where stock fundamentals come into question.
If the first two cannot happen, a buyer or seller have to go through an open market execution.
In the third method it is most important to look for stock fundamentals before buying or selling. That means big players look at stock fundamentals and market fundamentals before executing a deal or a trade or an investment.
Because retailers do not have the necessity for all these things, they do not care.
What are these stock fundamentals and how to look at them?