Top-down and bottom-up are two common investment approaches used by WALT ST. Knowing what they are and how they are applied constructing investment portfolios can help you understand the factors most likely to impact investment returns.

Starting at the Bottom:
A bottom-up strategy, also known as “stock picking”, is one where investments in individual companies are made based on an extensive analysis of their financial strengths and merits. Following this approach WALT ST will analyze a number of factors specific to that company or the industry in which it operates including its:

• Business model
• Growth potential
• Management capabilities
• Financial information
• Product range
• Competitive position

The main objective of a bottom-up strategy is to identify companies whose current stock price undervalues its prospects and ability to generate future cash flow – in other words – to unearth so called “hidden gems”.

Some common themes we look for are:

• Solid companies suffering from being part of a currently unloved industry
• Historically bad performers that are undergoing a management change.
• Companies whose current market value is less then the realizable value of the company’s assets.
• Companies judged to have a much higher growth potential than is commonly recognized by the market.
• Companies producing a new and untested technology

WALT ST identifies stocks that offer good value based on fundamental analysis such as growth potential and asset values, the idea is that other market investors will eventually follow, increasing demand and pushing up the stock’s price.

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