Bottom-up investors believe that superior companies will do well even if other companies in their sector are struggling.
They focus on fundamentals and product market position to make their stock selections.
Performing Stocks
This contrasts with the top-down investor who looks at broad economic and market indicators to determine which companies have the best chance of out performing the market.You can read more about top-down investing by clicking on the link at the bottom of this article.
As is often pointed out, both methods seek the same end – superior performance from stock selections.
Bottom-up investors make good use of stock screens to select companies with the fundamentals they require, such as strong earnings and earnings growth.
Low Debt
A bottom-up investor might also be interested in a clean balance sheet with little debt or low debt for the industry.Another key ingredient for many bottom-up investors is a dominant market position or consistent growth in market share nearing leadership in the industry.
Bottom-up investing is not foolproof.
Ignoring major economic or market trends can backfire if a company is more vulnerable to upheavals than the investor believed.
As a practical matter, investors are better off combining top-down and bottom-up approaches into a system that makes sense to them.
For more information on top-down investing, click here.
