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Finance GlossaryBottom Up Investing
Bottom Up Investing
Definition of Bottom Up Investing
Bottom-up investing is a stock picking strategy that uses analysis of individual companies and shares for decision-making instead of focusing on the broader economy, market, or industry.
Related Terms
Rights Issue
A rights issue is a common type of corporate action. When rights are issued, the existing shareholders of a company get the option to buy additional shares at a discounted price. In the process, the company raises fresh capital that it uses for different purposes. Some of the common uses of issuing rights include capital for expansion, reducing debt, or creating a working capital. Shareholders have the option to subscribe, ignore, or sell their rights, depending on the structure of the issue.
Advance/Decline Line
An Advance/Decline Line can help you plot the daily difference between the number of advancing and declining stocks.
As a result, the Advance/Decline Line is a technical indicator used to gauge market sentiment, price trends, and trend reversals.
Here’s how the Advance/Decline Line is calculated:
As a result, the Advance/Decline Line is a technical indicator used to gauge market sentiment, price trends, and trend reversals.
Here’s how the Advance/Decline Line is calculated:
- Calculate the number of stocks that finished in the red.
- Calculate the number of stocks that finished in the green.
- Subtract #1 from #2 to find out the net movement aka Net Advance.
- Repeat #1, #2, and #3 the next day and add the values for Net Advance.
- Add both the previous day’s and the present day’s Net Advance. Repeat for future calculations.
Short Selling
Short selling is a popular intraday selling strategy. Through this strategy, traders can sell shares that they currently don’t own. They expect the prices to fall, so they borrow the shares and sell them at the current price. The goal is to buy the stock back later at a lower price. However, traders can incur significant losses if the prices rise instead. That’s why risk management is crucial in short selling.
Compounded Annual Growth Rate (CAGR)
Compounded Annual Growth Rate shows how much returns on average an investment can generate over a year, given the data for a period of time (say 5+ years).
CAGR is an indicative measure of yearly returns growth that assumes the profits are reinvested. The formula to calculate Compound Annual Growth Rate is:
CAGR = [(Ending value/Beginning Value)^(1/N)]-1
CAGR is an indicative measure of yearly returns growth that assumes the profits are reinvested. The formula to calculate Compound Annual Growth Rate is:
CAGR = [(Ending value/Beginning Value)^(1/N)]-1
Rally
A Rally describes a sustained upward movement in the price of a stock, index, or market over a short to medium term, often driven by positive news, strong earnings, or improved investor sentiment. It typically follows a period of decline or consolidation, reflecting renewed buying interest and momentum. Traders monitor rallies for entry points, but they can reverse if underlying fundamentals weaken or profit-taking occurs.
Modern Portfolio Theory (MPT)
Modern Portfolio Theory (MPT) is an investment framework that focuses on maximizing returns for a given level of risk through diversification. It suggests that combining assets with different risk and return characteristics can reduce overall portfolio risk, rather than evaluating investments in isolation.
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