Hey guys, it's sasha as a long-term investor. Fundamental analysis is key to making smart investing decisions. Fundamental analysis is the method of assessing a stock when you're deciding to buy or sell it and is based on numbers is based on models. It's based on analysis, but there is one big problem with fundamental analysis that many people often completely forget about, and this problem can be the big reason why you don't make any money on a stock that has the perfect numbers, even if your analysis ends up being Right now i am a fundamentals guy and i base all of my decisions every time on numbers.

That's why i do not invest in many of the popular stocks, and it's also why i sell out of positions before those stocks head for the moon aboard the latest hype train and it works great. For me, i am very happy as a mathematician. I am particularly happy to stick to using real fundamental analysis in my investing and by the way, fundamental analysis is not sitting in a room with two of your mates and spending two minutes. Looking at eight numbers from the past, it actually involves using your brain so that you know you can actually make money in the biggest bull run in history.

Anyway, there is one big problem with fundamental analysis that i never hear anybody mention and it's not a very easy problem to explain, but it has very serious implications, so hear me out i'll do my best at explaining it okay. So the objective of fundamental analysis is to figure out what you think a fair price for a company's share is today you are trying to figure out how much the shares should cost, and then you can make your investing decision on that. If the current share price is much lower than that fair price, you worked out, then you might choose to buy the stock, and if the current price is much higher, then you might choose to sell stock. If you have it or definitely not buy it.

If you haven't got it already, no okay, that's the easy bit right now. The way you figure out a fair share price is by calculating the expected future cash flows of the company and divide by the total number of shares. So you own a small slice of the business as a shareholder, and you expect the company to generate x dollars in free cash flow over the next five to ten years. Whatever you choose to do, and at the end of that five to ten years, you also expect to have some kind of residual value as well call it y dollars based on the company's ebitda cash flow.

Whatever metric you want to use because usually you're not projecting for the next 200 years right, so you have to have a residual value at the end of your model. So you add up x and y and that's the sum of the money that you expect. The company to collect in the future and then you go and just subtract the next outstanding debt today, from that the company has because that debt will have to be repaid at some point from that cash flow. And then you, the number you have left you just divide by the total number of shares, and that's it.

That's the value that you think the business is worth. It's actually very easy when you think about it right and there might be different ways, different methods that people use to arrive at the answer - some might be simpler, other ones might be more complex. Some will use one kind of model, others will use another sort of model and that's cool. You do your way that works for you.

This is just a personal preference thing and there may be arguments for and against all of these models. But now the theory here is this: you feel that you can forecast these future cash flows for the stock better than the average current sentiment on the market and the reason you are buying the stock is because you expect that over time the rest of the market Will gradually agree with you, that's how you will actually make money right, it's not necessarily by being right. You expect that, as the company posts more data time passes, the company shows their quarterly results and all of that then more people will see what you see and then they will come to the same conclusion. There will be a sort of an agreement of a large number of people and what the share price should be.

Then the share price will naturally go up as a result and that's when you've made your gain now in pure theory. You don't need this to happen because in pure theory you could wait 200 years to collect all those future cash flows. But in pure theory you would have to sit there on that stock for those couple hundred years and most people probably don't want to be doing that. Maybe you'll wait for the company to be bought out in 150 years, whatever so in practice.

Most of us are probably not going to do that, and the way that we are gon na make money from the stock market is by waiting for the market to agree with us, and that is where the problem lies, because so often people just get obsessed with The valuation bit itself, people will shout at each other on twitter saying they disagree with someone else evaluation method. Maybe they disagree with the numbers they use or whatever, but very often that's not even the reason why people don't make money in the stock market is because, even if you are great and bang on with the evaluation model, it may well be the case, and it Often is the case that the market just never agrees with your projections by the way, while we're talking about analysts on the wall street. Agreeing with your projections, i have a special black friday deal for tip ranks if you're interested in joining. I don't often talk about places where i look and source my data, but tip ranks is the best place to get a view of what the wall street thinks about any particular stock.

They have a huge amount of data. You can literally go and look at what thousands of analysts are out there working on what they're thinking about some of the big companies, what they particularly think about specific stocks. Here is what, for example, one of these pages looks like for tesla on tip ranks. We've got daniel ives, who is by the way one of the top 10 analysts out of the 15 000, whatever it is on the platform and he says tesla is undervalued and he has a target price of 1400.

You can read their reviews. You can follow them to get updates on that target share price or you could instead go and follow this guy called gordon johnson, who is one of the very worst rated analysts in the platform, and he has an average on average lost nine percent per rating he's. Given and he says that you should definitely sell tesla stocks, so you can pick out of those types of people anyway, these guys tip ranks are selling the biggest ever sale ever at the moment, you can get 30 off the annual subscription and that deal expires at Midnight tomorrow, saturday, the 27th of november eastern time, so you have to be very quick. It's just about a day and a half left of that sale.

So if you do want, it feel free to use my link in the description to be able to go and get that one of deal all right back on the topic. There are a few different reasons why analysts might not agree with your projections. The most common reason is that your projections are seen as being overly optimistic. Sometimes people will go and compare your projections to older companies that work in a completely different way that are burdened with debt for million differences, and they say it's impossible, for example, to be valued at one trillion dollars when that's more than the next 14 car manufacturers Combined because those other guys, you see, make lots of cars and that's the only metric that matters.

The problem is that, despite the world of investing being seen as being highly complex and sophisticated, the truth is just like with everywhere else, a lot of the people who work in these organizations, including in relatively senior positions, decision-making positions. Um are not as smart or as sophisticated or have as much coverage as you might think. In fact, a lot of people controlling very large amounts of money are really not all that mathematical and sometimes not even that good at what they do just like in any other job, just like in any other industry. We elevate these people to some kind of special.

Almost god-like status, but they're just people who happen to be in a job and finance and you know they've, moved their way up a few positions and that's it and that's why you will sometimes come across a company like amd that is being valued at 70. Something dollars and you're sitting there wondering. Why is that? Because your valuation says it is more than 100 undervalued and relatively conservative assumptions, because the stock market is just not really as good as you might think, at working everything out perfectly all the time and the problem is that the market just may never agree with your Evaluation, even after a few years of data, proves your thesis in your opinion. If that happens, you're stuck it doesn't matter how right you might be if the market doesn't see it it's irrelevant.

This, for example, is why some small companies that are off the radar can often take a very long time to go up on value when and when they do. They sometimes just go and shoot straight up. It's not necessarily because there's something magic that happens in that. One year, it's often because those guys are so far off the radar of many of these ultimate decision makers.

Now the people to agree agree that the valuation should be higher. You need more consensus, sure there is a lot of fluctuations and some people will be analyzing them. Some people will be looking at them, but at the end of the day, that will often be the long-term reason. Sometimes the market will continue to place a high risk on stock, and that will mean that it never the market never agrees with the evaluation.

Sometimes the market will continue, valuing a company based on some kind of outdated thinking about the industry, for example. This is very hot off common, it happens literally all the time over and over one decade after the next, you have a new disruptor who turns up, and people just value the company in the same sort of way as they you know, they value other companies that They think are similar. You know it happened to amazon who was compared to retailers uh in in every single way. It happened to google for a while, and it happened to tesla as well.

It's happening to them to a degree now, despite them being big. All these examples eventually did catch up, but it did take them a long time years to get there years in which some investors, who might have sat there on the chairs for four or five, maybe even seven years, and the shares weren't really moving to where maybe They thought maybe those investors would have sold out in that time because they lost conviction and usually, if you are patient enough, the situation will eventually change and, as the company reaches its potential that you may have predicted before it may well become impossible for analysts to Ignore the numbers, but that doesn't always happen. Imagine the company is disruptive and doing really cool stuff, but that company is in an industry that will see a sudden shift in 10 years time. Let's say the way that we search and access data completely changes.

In 10 years we have new, ai or new robotics or whatever companies that create new ways of accessing information through bionics. You just need to think of it, and the information comes up. I don't i'm just making this up. It doesn't really matter.

This is an example, but in that case, if you felt that google was undervalued today, even if you were right based on the projections over the next decade, the market may choose to not agree with you for a while and by the time that it might begin Agreeing with you, it might be too late. Your thesis may have been perfectly right, but you will never get the financial reward, despite it being right, maybe in 10 years time we're going to discover a super compact, new type of power source that we don't know about. Yet that makes battery-powered cars redundant overnight and tesla with their 10 huge giga factories making battery cars may be the next dinosaur that doesn't want to adapt and change as possible, and if the market between now and then doesn't want to agree with your valuation of tesla, That is much higher, for example, than it is today. You might never see the upside come through and these examples might be a bit extreme, but hopefully they illustrate an important point when you're doing fundamental analysis, two things have to happen for you to make money.

The first is that you have to be right with your analysis right, and the second is that you have to wait for the market to agree with your thinking and it's that second bit. That carries a big risk and it is often the reason why your investment doesn't end up doing well. If you found this video useful, please go ahead and smash the like button for the youtube algorithm. Thank you so much for watching.

I really really really appreciate it and, as always i'll see you guys later.