Professor Paul Johnson has deconstructed security analysis into the follow four subgroups. He believes that the entirety of security analysis falls under these four subject areas.
Capital Market Theory - sets the environment in which security analysis is preformed. Without a well constructed view of modern capital markets, security analysis will be less effective.
Economics of Strategic Behavior and Competitive Advantage - examines the economics of the company's business and its competitive advantage. The primary focus is on determining a company's ability to generate excess returns on invested capital and links the business strategy with fundamental corporate finance and capital markets.
Valuation - is the fundamental link between a company's expected financial performance and its overall value and valuation .
Decision Making for Investors - investigates an investor's ability to perform "rationally" when conducting economic reasoning and analysis, and tries to determine the natural inhibitors that prevent him from performing optimally under these conditions.
This page was last updated on 06/04/11.