The Bottom-Up Approach To Investing

Bottom-Up investing is an investment approach that places all focus on the stock to be invested itself

If you have been following our articles for long enough, then you would know that there are so many investment strategies that investors or traders apply to better their odds at investing or at least make the process much easier for themselves.

From those that are tied to fundamental analysis processes to the technical investment analysis, the goal is to be able to make valuable decisions based on the best information available. One of these amazing methods is what is known as “Bottom-Up Investing.”

Bottom-Up investing is an investment approach that places all focus on the stock to be invested itself. It thus relies on the fundamental analysis of an investment.

It focuses completely on every individual security as opposed to the overall movements in the securities market, the industry the stock is based in, as well as other aspects of the wider macroeconomic landscape.

The basis of the Bottom-up approach is that each individual company would be able to do well even in an industry that is not performing so well if it has all the other elements to make it work.

For the investor following this approach, he or she would discard information of the wider investment ecosystem and focus on the company, its management, its historical financial information, research papers on the company, its market information and so on.

Here’s the sense in this form of investing: While there are wider issues that could potentially drag any form of investment down, such as political unrest, focusing on the company would mean focusing on long term investment growth.

So, while various things could potentially affect the growth of the company, the overall success or failure of the company is not tied to the environment or investment landscape, but to the stock or company itself.

As such, investors who use this approach are focused on the long term or those who employ the buy-and-hold strategy of investing.

Factors that are then considered by the investor include its market share, the kind of products or services offered and their relevance to the changing world, the supply and demand dynamics of the company’s products or services, its organizational structure, its historical financial statements and growth rate, its marketing strategies, the management, market indicators based on efficient ratio analysis, and the overall financial health of the company.

Investors here, do not invest haphazardly, but after careful analysis of the potential of the company. Every stock is thoroughly analyzed before being added to any investment portfolio.

The approach gives every investor deep insights into the state of the company and gives him or her a level of confidence in his or her investment.

Written by Lawretta Egba.