Qualitative and Quantitative: Two Complementary Approaches to Research

As a self-directed investor, you rely on detailed information to help you identify good investment prospects. When gathering fundamental and technical research, you’ll rely on both quantitative and qualitative approaches to analyze the data. Here’s how they work. 

Research is simpler than you may think

While the words “quantitative” and “qualitative” may sound complex, most of us use both types of analyses in the decisions we make every day. Searching for a hotel is a good example. To find out more about a specific accommodation, you may turn to travel review websites to read subjective (or qualitative) accounts of what the rooms are like, the level of service and how much people enjoyed their stays. But to make your final booking, you’ll also want objective (quantitative) information from the hotel reservation line or website — such as price, room size, amenities and the distance from key attractions.

How it works for investing

You’ll use the same approach when gathering information about companies. But how do the two types of research compare?

• Qualitative analysis is subjective. Investment analysts look at a variety of factors, such as industry trends, the effectiveness of a company’s management and the strength of a particular brand, to form an opinion about the company and its stock.

• Quantitative analysis is objective. Investment analysts study a company’s financial statements, analyzing the numbers — revenue, expenses, assets, liabilities and so on — to try to determine if a security is underpriced, fairly priced or overpriced.

 Is one better than the other for certain investments?

In a word, “no.” They simply provide different kinds of information. By considering both, you can gain a 360-degree view of a potential investment for your portfolio.

Where to go for research

There are a number of places for you to access research on the site. For example, from the Detailed Quote of a stock, visit the Research sub-tab for third-party qualitative analysis from Morningstar^‡.

You can also use the information on the Fundamentals tab to do your own qualitative analysis by reviewing a company’s price/earnings ratio or return on equity. If your focus is more of a quantitative approach, go to the Financials sub-tab of your Detailed Quote to review a company’s income statement, balance sheet and cash flow. You can also visit the Technicals sub-tab for third-party technical analysis from Recognia^‡.

For additional resources from Morningstar, head to the Market Insight page to read the “Canadian Research Highlights” report or to review Morningstar’s Pick Lists. For more technical analysis information, the Technical Analysis page offers technical events and education from Recognia.