IntroductionEconomic activities in modern nations, capitalist and socialist alike, remain driven primarily through choices made on maximizing the utility of characteristics of production – at a micro and macro level. Most countries have economic structures that ensure that much of this choice is made by the entrepreneur – who seeks to earn profit by using capital – including tools, technologies and buildings created and used by humans – to produce goods and services . Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original EssayAlthough capital is a broad concept with specific characteristics, the most economically relevant form is financial capital which is currency, credit and other forms of financial assets that the entrepreneur (either as an individual or as company) uses to create wealth or acquire products and provide services. This activity is often carried out within the framework of the financial system consisting of financial markets (a geographic or virtual location where buyers and sellers exchange assets such as stocks, bonds, currencies and derivatives), regulators (which monitor and regulate market trading to ensure prices and fair practices) and institutions (which intermediate and decide the flow/allocation of assets). The concept of investment management Participation in the financial market requires the allocation of assets into a trade, with the expectation of achieving a return within a period of time; this allocation is called investment. Investment decisions are made by market institutions which include banks, non-bank financial companies, institutional investors, businesses, households and even individual investors. Making these asset allocation decisions is based on a complex mix of understanding an investor's needs, constraints, risk tolerance and knowing how to evaluate the future performance of financial securities with the right information. Investment management, or the study of these financial instruments, their properties and the risk and return faced by them, becomes useful in helping stakeholders conduct robust predictive analysis on financial markets to decide which investments would be useful to them over time. There are two main schools of thought on the most useful approaches to analyzing securities. These are the school that supports fundamental analysis and technical analysis. Fundamental Analysis Refers to an approach to making investment decisions through a comprehensive evaluation of the economic, financial and other qualitative and quantitative factors that may influence the value of an asset in order to determine the intrinsic value of the asset. Fundamental analysis is based on two key assumptions: that financial markets are efficient and that the value of an asset derives from the fiscal health of the company that owns it (in the case of stocks) or from the price directions of nationally relevant assets markets (in the case of currency trading). Fundamental analysis assumes that the price of a stock may not necessarily reflect the value of the stock at the moment and making an investment decision to buy or sell would be based on understanding the true value of the stock. As such, fundamental analysis examines macroeconomic, sector, and institutional/company level factors that not only influence the current price but can influence the future price in estimating the objective value of an asset and predicting its future price movement . In theconduct fundamental analysis, evaluations start from the evaluation of macroeconomic factors. Parameters used to conduct such assessments include a nation's gross domestic product (GDP), interest rates, inflation, foreign exchange reserves, national productivity, consumer price index and their impact on financial health of the company. Industry or industry-level analysis evaluates parameters such as market size over time (sometimes as a contribution to GDP), supply and demand analysis, value of existing competition, and industry risk factors. At the company level, fundamental analysis evaluates metrics that provide insight into the company's current and projected financial health. These metrics include the company's earnings per share, valuation analysis (return on equity, price-to-earnings, price-to-book, price-to-sales), ratio analysis (operational efficiency, operating profitability and solvency ratio) the quality of management, debt and interest obligations and revenue. Furthermore, to predict future valuation, a financial model would be needed that requires important assumptions about the company's financial performance. This type of analysis is often performed by non-high frequency investors and those working with a longer time horizon. The approach is slightly different for currency trading markets as what is traded here are not company shares. What is evaluated are macroeconomic indices, a country's financial markets and its political scene. This analysis is comparative across nations and guides trades in one currency versus another. The macroeconomic parameters analyzed are largely the same as for stocks, while asset market indices speak to the health of a country's real estate and securities markets. Political events would also help investors decide fiscal stability and investment confidence. Beyond application, the theoretical basis of this school of thought is the theory of decision making. This theory states that in making a choice about what to do, the rational decision would be the one made by a systematic thought process that identifies the best one among several alternatives that can be used. Simply put, this theory encourages the use of rigorous evidence in making decisions. Fundamental analysis has several advantages, one of which is that investors are able to develop enough business acumen to identify companies with strong corporate and financial governance. With its industry-level analysis, fundamental analysis can help investors identify value drivers; such value positions could be high risk like the tech sector with its booms and busts, low risk like utilities with a fairly stable financial state over a long period of time, seasonal/cyclical like the transportation sector which has daytime peak hours and seasonal schedules that are patterned or non-cyclical as in the case of basic food products that remain in demand all year round. Technical Analysis A prominent investor in the US markets once said that "One way to end up with $1 million is to start with $2 million and use technical analysis" to show the disdain for technical analysis that he previously enjoyed . Indeed, many critics see technical analysis as an untested approach. However, as it has become widely used, technical analysis has proven particularly useful in determining when to buy or sell assets. Technical analysis begins with the main assumption that the intrinsic value and any past trading information of an asset is already reflected in the price ofmarket, and that what you need to know are changes in the price performance of an asset over time due to shifts in supply and demand. In essence, technical analysis applies indicators that do not depend on the financial health of the asset. Price trends are useful for predicting future asset prices based on the assumption that price changes are directional (up or down) and that such observable patterns, such as market behavior and history, often repeat over time. non-random time intervals (daily, weekly, monthly). ). Technical analysis focuses on using past market data in studying the technical details of the market, including the psychology and emotions of market stakeholders, to track future trends in the price of assets. Trends are useful not only because they are assumed to repeat and continue, but because each trend is also believed to be influenced by proximate trends (the previous long trend, the next short, etc.) and all trends behave similarly. However, such similar behavior, although not entirely random, is not automatic: they have many components that are still random (Fidelity Investments, 2017). The main tool for technical analysis is the chart, which summarizes the movement of asset prices over specific time frames to highlight trends and patterns. Since such technical analysis provides critical and easy-to-use tools for quickly identifying trends, market volatility, trading volume and a more complete range of trading information in short periods of time. Among technical analysts, an asset's trading volume, moving averages, and technical indicators such as Stochastic and Moving Average Convergence-Divergence (MACD) are the metrics used with charts to predict market and price trends. Importantly, technical analysis and non-dependence on information about the financial health of companies is based on the efficient market theory (Utami and Nugroho, 2017). This hypothesis states that efficient markets are able to aggregate (through the forces of supply and demand) the value of a good and fully reflect it in the price of the good. The third school of thought While it is classically accepted that there are two schools of thought on In investment management, in recent years a third school of thought called Quantitative Analysis has been attributed. In many ways, it represents both a blend of the two classical schools of thought and the logical endpoint of the high-level computing that gave rise to technical analysis. Quantitative analysis refers to advanced statistical modeling that uses technical indicators to analyze excess return forecasts and fundamental indicators such as earnings and financial health of stocks. Merits and Demerits There are several merits and demerits of the fundamental and technical school of thought. In explaining this, I will focus on these two only by first stating the merits and demerits of the fundamental school of thought and then that of the technical school of thought. There are currently three known merits of the fundamental school of thought: Stock prices are determined based on the performance of companies and their ability to make money Stocks are a good investment choice when their market value is lower than their true value intrinsicFundamental analysis consists of examining real economic and market factorsThe demerits can be stated as follows:Fundamental analysis is considered a waste of time by investors as it takes time to identify the information needed to decide. The value of stock prices is open knowledge as it is available to everyone in caseof technical analysis, the merits The relationship between technical and fundamental analysis Complementarity Historically, fundamental analysis was seen as the only useful school of thought, but complex processing and innovative trading methods such as algorithmic trading have made the analysis much more relevant technique. In today's market, an effective approach to investment management is not based on just one method. The larger objectives of investment management, namely using a rational and disciplined approach to prevent asset loss while realizing and maintaining profits, within an acceptable range of risks, would require a complementary application of both analytical approaches based on an understanding of the their strengths and weaknesses. It is widely believed that the main contrast between the two approaches is their central application. This is that fundamental analysis serves to guide in the long-term investment decision in an asset based on an assessment that the essential valuation of the asset, although not currently reflected in the current price of the asset, would be in its future price; While technical analyzes are used for short-term trading to take an asset and turn it upside down. Or as one prominent American investor explained: “Fundamental analysis really drives the decision about which stocks we want to own. But the timing of buy and sell decisions is split pretty evenly between technicals and fundamentals.” Mishra further highlights this point in his study which presents several academic literatures showing that in short timescales, technical analysis outperforms fundamental analysis in choosing profitable trades. These applications, however, are not necessarily contradictory, despite the claims of purists of both schools of thought. This complementarity is defined as “rational analysis”. Therefore, an investor who relies primarily on fundamental analysis may decide to conduct such analysis to identify an asset whose price is currently undervalued and then borrow the tools of technical analysis to decide when to buy that asset at a low price (entry), then sell at a higher price (exit). This combination is especially useful when an asset is completely oversold and entering the position too early could result in a loss of profit. Additionally, a technical analysis investor may decide that the price trend of an asset will change at a particular time, then apply fundamental analysis to measure the profit margin he or she would expect to earn from that change. Despite this free utility, understanding the differences also matter. Differences The differences between the two analyzes are broad, ranging from key assumptions to information analysis, time frame of application, and directional perspectives. Some of the most important are described below. Market Efficiency Perspectives: While both accept that the market is efficient, the meaning of that efficiency is different. In fundamental analysis, market efficiency is seen as the assumption that the market is able to correct the valuation of an asset over time. This allows you to hold an asset for the long term while waiting for the market to align with the investor's assessment of the asset's true value (i.e., undervalued assets purchased at lower prices can later be sold at higher prices). For technical analysis, market efficiency is evident in the assumption that the market is able to consider allb. Analysis data base: Fundamental analysis is based on specific parameters that aim to primarily evaluate the return on capital and return on assets over time. Technical analysis,.