Do market cycles really matter? Learn how to use Bottom-Up approach to invest

Investing with moomoo joined discussion · Jul 6, 2021 11:43

Do market cycles really matter? Learn how to use Bottom-Up approach to invest

We usually hear about 'Bottom-Up investing' through Wall Street reports. It's an appropriate approach to get excess earnings.

What is Bottom-Up investing?

Bottom-up investing is an investment style in which an investor focuses on the fundamental of an individual company, rather than on the industry in which that company operates or on the greater economy as a whole.

What to consider?

Bottom-up investing forces investors to consider microeconomic factors first and foremost.

These factors include a company's overall financial health, analysis of financial statements, the products and services offered, supply and demand, and other individual indicators of corporate performance over time.

The opposite of Bottom-Up approach

The Bottom-Up approach is the opposite of Top-Down investing which is a strategy that first considers macroeconomic factors when making an investment decision.

Top-down investors instead look at the broad performance of the economy, and then seek industries that are performing well, investing in the best opportunities within that industry.

Example of a Bottom-Up approach

$Microsoft Corp(MSFT.US)$ is a good potential candidate for a bottom-up approach because investors intuitively understand its products and services well.

The analyst takes a step up from the individual firm and would compare Microsoft's financials with that of its competitors and industry peers in the software industry.

'Stock Compare' only availiable on Mobile App version now

Desktop version

Doing so can show if Microsoft stands apart from its peers or if it shows anomalies that others do not have. The next step up is to compare Microsoft with the larger scope of technology companies on a relative basis.

After that, general market conditions are taken into consideration, such as whether Microsoft's P/E ratio is in line with the S&P 500, or whether the stock market is in a general bull market.