Fundamental analysis

Fundamental analysis attempts to value an investment. Generally, the analyst
estimates the expected future cash flow of the investment, and uses
projections of interest rates to assess the present value of the cash flow.
Linear projections based on five year averages are usually adequate.

A crucial concern of many investors is to obtain a large margin of safety
when making an investment. It is well known that forecasting future earnings
and interest rates is difficult, and estimates of these are often
unreliable.

Another complementary method is to interview employees, competitors, vendors
and customers about a company. Often these people will know as much or more
about a company than its management. The goal of this research should be to
determine whether the company has good practices, and whether its management
is honest.

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