08 Jul 2007 | Comments | investment | Comments feed

Bottom Up Approach in Unit Trust Investment Malaysia

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I previously wrote an article regarding the top-down approach in investment. Now let’s look at a contrary approach which is also much practiced by the local unit trust fund manager: the bottom-up strategy.

According to Investopedia:

The bottom-up approach assumes that individual companies can do well
even in an industry that is not performing very well. This is the
opposite of “top-down investing“. Making sound decisions based on a
bottom-up investing strategy entails a thorough review of the company
in question. This includes becoming familiar with the company’s
products and services, its financial stability and its research reports.

In short, a bottom-up investor focuses on selecting a stock based on the individual attributes of a company. Comparison of companies based on fundamentals; as long as the companies are strong, the overall macro economy conditions are of no concern.

Consideration of fundamentals of a company includes:

low price-to-earnings ratio
high book value
future prospects, business outlook
company management team
market competitiveness
relative valuation
and many other considerations of the company’s performance

This investment approach is most suitable when the fund manager is close to his market - hence it is not appropriate to be used when investing globally.

Good investment selection for the bottom-up investors are those under-rated or under-researched companies that have the potential to unlock value in long term.