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What is a Bottom-Up Investment Strategy?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 01 December 2016
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    2003-2016
    Conjecture Corporation
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The bottom-up investment strategy is an example of an investment approach that is based on a very narrow focus. The application of this type of investment strategy is normally based on considering only such factors as the business model for the company, as well as the current configuration of the management team, and the historical performance of the company. At times, the growth aspects of the company may also be taken into consideration, although this is not always the case.

Choosing to engage a bottom up investment strategy means that several attributes that are often points of consideration are set aside. While the business model of the company is considered, it is not evaluated in relation to the models that are employed by the main competitors of the corporation, or with any comparison to what is considered the usual business model for that particular industry type. In like manner, the quality of the current management team is examined in light of their performance with in their current positions, with no research into performance in previous roles, or in relation to peers in similar companies. In assessing the performance of the company, the main focus of the bottom-up investment strategy is on how well the company has produced profits on a consistent basis, but there is no attempt to compare that performance to competitors of similar size during the same time frames.

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Proponents of the bottom-up investment strategy usually operate under the assumption that there are companies that are inherently superior to other companies in the same line or business, and that comparison with external factors are not necessary in order to accurately evaluate the investment opportunity. However, making investments based on the quality of internal efficiency, past performance, and general quality will earn an attractive return.

Opponents of the bottom-up investment strategy point out that the approach does not provide for analyzing industry trends that could impact future performance. The bottom-up investment strategy also does not call for evaluation of the rate of obsolescence for the type of products that are produced, and general economic trends that could limit interest in the goods and services provided by the company. Many investors consider these factors to be essential in determining the viability of an investment in any corporation.

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