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Hey everybody,
I feel today in general everybody is "obssed" with numbers. There 100s if not 1000s of indicators which can show you how a stock performs but they only tell half the stories.
**Quantitative Analysis** (numbers) **:**
It's numbers: P/E, P/B, earnings, etc.
There 100s if not 1000s of indicators which can show you how a stock performs. P/E ratio, Shiller P/E, cashflow, debt, Buffet Indicator etc. etc. Most of you have this part down, no doubt. Also, there are enough tools today that can help you. This part is "easy".
I remember 2008 when forums were neither purely quantitative nor qualitative. It was mostly a mix of chart analysis and freestyle opinions, haha. I'd read hundreds of posts just to learn absolutely nothing.
**Criticism:** Most, if not all, of the evaluation tools are automated and use only quantitative analysis, which can sometimes be a good indicator but often leads to ridiculous stock valuations. I remember a company announced they were going 'broke' next year and closing their doors, the stock tanked. Suddenly, many tools said the stock was **undervalued,** buy haha. I dont say Quantative analysis is stupid or useless, all I say is that it paints only half the picture.
**Qualitative Analysis** (understanding the business):
The second part is almost impossible to put into numbers, but it is as important, if not more important, than just "numbers". I have a feeling that this part is overlooked by many.
* Understanding the business and where the company is going:
* What is the vision of the company, short-term/long-term?
* What makes the company better than others: USP, patents, monopoly, etc.?
* What are the struggles of the company?
* How is the market in general? How future-proof is the company and the market?
* What makes them future-proof?
and so on !
**Examples:**
1. Example: **Quantitative:** Perfect numbers, strong undervalued. **Qualitative:** The company is in the postal market, which will disappear (depending on the country) in the next 5-10 years and does nothing against it.
2. Example: **Quantitative:** Mid numbers (fairly valued or even slightly overvalued). **Qualitative:** Developed a new CPU which will be market-disruptive.
Which stock would you buy ?
**In Summary:**
A quantative Analysis gives you a view in the **past** performence of the company.
A qualitative Analysis gives you a look into the **future** performence of the company.
You need both otherwise you dont get the full picture, it is more work and less convient but thats why we are here :)