How to optimize bottom-up investing strategy

If investors get an approach to the bottom-up investing strategy, they will be less likely to miss good opportunities in the stock market. Photo: Quoc Tuan

This approach comes from bottom-up analysis, carefully screening businesses as well as the stocks in each industry, and industry in which those businesses are operating, then analyzing the macroeconomic factors, business environment, monetary or fiscal policies...

Don't miss the opportunity

It is recognized that if investors get an approach to the bottom-up investing strategy, they will be less likely to miss good opportunities in the stock market. The biggest advantage of this approach is that it mostly eliminates confounding factors, such as investor sentiment, fluctuations of macro environment, etc., but will focus on screening stocks in line with rigorous standards of common stock analysis. Accordingly, any stock which is trading below its book value and lower than short-term net assets while reviewing dividends, revenue, and profit from core activities of that company, will be selected.

For example, we can screen shares such as DHC, DGC, STB, PSH, HSG, PVD... which had ever encountered difficulties and challenges in business, to realize that the bottom-up investing approach will not miss the big opportunities in the stock market.

Contrary to short-term investment strategies, or investing in momentum, or using technical analysis in stock screening, the bottom-up investing approach is more suitable for the majority of investors. Some investing strategies such as momentum or top-down investment can only be used when the economy is prosperous and the stock market is in an uptrend. However, these strategies are hardly applied when the economy is in the recession stage or the stock market is in the downtrend phase.

The bottom-up strategy will focus less on market conditions, macroeconomic indicators, and industry fundamentals. Instead, this approach focuses on how an individual company in a sector performs in comparison with other specific ones within the sector. In fact, the best investment opportunities sometimes lie in "problematic" businesses or businesses that appear to be risky with poor returns.

Suitable for amateur investors

Investors are recommended to add stocks that meet the requirements of the bottom-up investment criteria to watchlists for investment. A bottom-up strategy can be applied to value investing, which means looking for undervalued stocks to hold for the long term or annual dividend stocks. Obviously, this strategy will be more suitable for the majority of amateur investors rather than for professional investors.

Regardless of the investment strategy, preserving capital and preventing loss in an investment portfolio is the most important before thinking about the returns on stock investments. Any investment strategies that are both safe and prudent, should be appreciated over risky trading methods.

In the context that the stock market is attracting more and more individual investors and amateurs, it is only a matter of time before the stock market grows in size and number of accounts. If VN-index hits new highs of 1,400 or 1,500 points or higher, investors should only pursue an investment strategy that has been proven effective over time. And the bottom-up investment strategy seems to be a long-lasting method for successful investors.