Fundamental Analysis Redux
Year: 2018
Type: article
Abstract: ABSTRACT In their classic text Security Analysis, Graham and Dodd (1934) warn investors against sole reliance on a few quantitative factors in investment decisions. Instead, they recommend that investment decisions be based on a comprehensive fundamental analysis of the underlying securities. While their views held sway for many decades, recent years have witnessed a sharp reversal. Scholars of finance often overlook fundamental analysis, and their influence has led to a surge of investment products relying solely on a few quantitative factors. These products often have names that appeal to fundamental analysis, such as “value” and “quality.” I argue that Graham and Dodd's (1934) recommendations continue to have merit. I show how popular quantitative approaches to investing overlook important information and select stocks with distorted accounting numbers rather than temporary mispricing. I conclude that informative financial reporting and comprehensive fundamental analysis are essential for the efficient functioning of capital markets. Data Availability: Data are publicly available from sources indicated in the text.
Source: The Accounting Review
DOI: 10.2139/ssrn.3176340
Author: Richard G. Sloan
Institution: University of Southern California
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2887015109