Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Bottom-Up Investing

What it is:

Bottom-up investing focuses on individual securities rather than on the overall movements in the securities market or the prospects of particular industries.

How it works (Example):

Taking a bottom-up approach to investing means becoming fully familiarized with the company you are considering investing in. There are many aspects to consider when investing in a security using the bottom-up approach.

For example, you may be interested in investing in Company XYZ. You will probably begin by researching what type of company they are, what products they offer, and their management structure. Most importantly, you will review Company XYZ's accounting statements and annual reports in addition to past performance data on their securities. You may then consider the overall market as well as the company’s customers and target customers.  You should also consider what customers say about their experiences with Company XYZ's products and customer service.

The bottom up approach can be thought of as the opposite of the top down approach which relies heavily on economic and market trends.  To illustrate this difference, in a top-down approach you might begin by looking at market data over time or at the performance of specific sectors of the economy. You may also look at the impact of certain events (e.g. wars, natural disasters, presidential elections) on market performance. Unlike the bottom-up approach, the investor will be more concerned with overall markets than with any particular security.

Why it Matters:

The bottom-up investing approach provides investors with the opportunity to become familiarized with the long-term potential of individual companies. Through researching and comparing individual companies, certain investors may be more confident in gains that can be made by investing substantially in a handful of solid companies rather than a smattering of funds or indices.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...