Bottom up investing is a type of investing where analysis of each significant stock is emphasised more over maxro economix cycles or market cycles.
As the name suggest, bottom to up that means investor divert it’s focus completely on one company’s fundamental rather than focusing on the industry as a whole.
It is performed with a mindset that may be industry is not doing good but the companies may perform good on relative basis.
Key points from the blog
- Micro economic factors to check
- Takeaway from the blog
- How bottom up investing works?
1. Micro economic factors to check
Bottom up investing forces analyst to check on micro economic factors such as :
- Company’s overall financial performance
- New products and services
- Financial statement analysis
- Supply and demand conditions
Over the period of time how these factors are reacting and what is the response company is getting from market.
2. Takeaway from the blog
- Bottom up investing approach is a method which focus on analysis of individual stock and it doesn’t give importance to study the macro economic cycle and market cycles.
- In this approach analyst or investor focuses on an individual firm first rather than coming top to bottom and going through greater economic groups first.
- It shows the hope of individual companies doing better on relative basis even if the industry is not doing good over the time period.
3. How bottom up investing works?
It works just opposite to the way top to bottom investing approach works. Instead of choosing the better performing industries from all and choosing companies from that industry for reviewing, here companies are directly focussed and given a thorough review.
It’s financial health and public research reports are taken into account and gone through compeltely.
It starts with a particular company and way is followed to the top going through the industry group, economic sector, market and macro economic factors are brought into analysis but it starts from bottom and goes towards top.
Bottom up approach gives an investor complete insights about a company’s long term growth potential, it’s where investors choose to buy and hold. Top down approach whereas act as an opportunity grab system where the high light industry is targeted and specific companies are choosen with entry and exit positions to grab short term profit.
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