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How to Start an Investment Club Portfolio – Bottom-up Investment Strategy

If you are thinking about forming an Investment Club, there is no one like Warren Buffet to learn how to start an investment portfolio with limited funds. The MTCore software utilises cryptocurrency backed by fiat currency in the form of Euros and US Dollars, but it is up to the members to make that money grow through sound investment strategy.

Warren Buffet and Cryptocurrency in the same sentence are not so crazy when it comes to understanding how to make good investments and a ton of money!

Born in 1930, he has been making money since the age of six and is now the chairman and CEO of Berkshire Hathaway, the head of Berkshire Hathaway, and has a personal wealth of $82 billion. Famous for his clearly defined bottom up long term trading strategy, Buffet has superbly engineered his financial investment portfolio since reading “1000 ways to make $1000”, published in 1936 and still making a lot of sense to investors in 2019.

“Rule #1 never lose money. Rule #2, never lose sight of Rule #1,” - Warren Buffet.

Warren Buffet always makes rational decisions based on research into the company in which he plans to invest, and he has been famously quoted as saying that the “stock market is manic depressive.” What Buffet means by this is that the daily equity market prices vacillate wildly based on consumer sentiment and if you do your homework, the rallies come some time down the road, making massive profits for investors who got in to a good stock at the right price and reaped long-range value rewards.

“Price is what you pay. Value is what you get.” – Warren Buffet.

In other words, if you do your analysis correctly, you should focus on the long-term underlying value of the investment and not the short-term quick sale turnaround. This is sound advice from someone who has accumulated more than a few billion dollars through investments in American Express, Apple, GM, Johnson & Johnson, Walmart, and MasterCard.

BOTTOM-UP TRADING ANALYSIS – LONG TERM INVESTMENT STRATEGY

When it comes to investment, everyone agrees that money management and a sound trading strategy are fundamental to making a profit. None of the world’s top traders ever just traded on a whim.

Trading professionals like Stanley Druckenmiller, who used the Top-down Trading strategy and Warren Buffett with a more Bottom-Up Strategy.

Buffet believes that the best long-term investments are in companies with “enterprise value,” i.e. powerful brands, pricing power, and the ability to outperform the competition.

WHAT IS BOTTOM-UP STRATEGY?

The Bottom-Up Strategy is where investors focus on individual assets and securities within specific industries as opposed to the Top-Down Strategy, which involves finding the best place to invest based on global macroeconomic investors.

A trading strategy is vitally important for all traders, and knowing whether you are good at bottom up or top down will form the primary starting point. Whether you like following historical charts to find trends or not, this is something that every trader needs to take seriously; you are putting money on the line to make more money from your investment choice.


The bottom up approach focuses on the microeconomic factors with emphasis on the company's financials and earnings. The process behind this strategy for investors is to study a single company stock or, for forex traders, a specific currency to gauge how the company or currency has performed against the industry or against one other currency or group of currencies/coins. The rationale is that a single asset with the right credentials will rise to the top as a high performance investment when measured against others in the market.

The assumption being that an individual company can out-perform others even in an underperforming industry.

HOW TO START A BOTTOM UP ANALYSIS

The fundamental starting point for bottom up analysis is by using a microeconomic study of the particular company.

You would then move to levels that are more comprehensive until you finally get to see how this company performs on a global scale.

The goals of this type of analysis are to study how different factors affect asset performance at each level.

The analysis aims to identify long position stocks in companies that are doing well and will continue to show value. The opposite is true for shorting opportunities; traders look for specific company stocks and currency that are expected massively devalue in the future.

Specific Company

To find a company that has excellent potential for long-term investment, pick a company that already has a reputation or one that is showing signs of moving into the right areas of financial liquidity – take Microsoft as an excellent example.

Industry

Microsoft fits in to the Application Software Industry, so this is the industry for your analysis.

Sector

Application Software comes under the Technology Sector, and this is where you should focus on what the industry is doing in general. The second part of your analysis is how Microsoft is performing against the stocks of others in this sector.

Local Economy

Analysis of the local economy of a country or region means, making a study of employment and GDP for the area and would involve currency, government interest rates, and taxes in addition to the political and economic situation. These factors give an overall view as to whether or not to invest.

Global Economy

If the specific stock or currency has a global influence, this would be a study of its potential level of trade within the global economy. The questions asked would be; are there major trading countries that are in a recession or coming off low trading averages over a period of months. Also of value in the analysis is there any sign of expansion or future expansion.

SUPPORTING ANALYSIS – THE BOTTOM-UP APPROACH

Fundamental analysis is the study of underlying influences affecting the company, industry, and economy. The goal is to find a future fair stock price value, based on the data collected at each level.

If the fair value price is not equal to the current stock price, it either indicates that the current stock price is over or under valued, and the analysists’ view is that the market will ultimately regulate the price to fair value.

Sound fundamental analysis will help identify companies with excellent value for long-term investment, but it can be extremely time consuming and often produce valuations that are contradictory to the current price, which is why traders often ignore the valuation in favour of going along with the trading trend on Wall Street and other exchanges.

ADDITIONAL ANALYSIS

Knowing a company’s business helps an investor to identify whether a particular company has more potential over its competitors. With rapid changes to revenue mix, some of the most dynamic company stock valuations have made headlines over the past ten or twenty years and mostly within the computer, internet, and social media Eco structures. The best way to understand whether a company is performing well or not is to study financial statements and then find a way to evaluate one company over another.

In addition to the financial statements, investors need to find out if there are any takeover bids or mergers, as well as product development and future expansions in the pipeline. Also, be aware of any change of senior management – this is always a good indicator as to why the share price is fluctuating.

Bear in mind that there are other extenuating circumstances such as a company that is doing really well might be in an industry group that is performing poorly on the local market but might have a better global outlook within a different socio economic market. In which case if the company has plans to go global, it might be worth investing in or, at very least, keeping a close eye on, especially if the stock price is dragged down by local market trends; this could be the chance to pick up an excellent long-term investment at bargain basement price.

IN CONCLUSION - A FINAL WORD OF CAUTION

Approach fundamental analysis with caution; avoid the hype that comes from the news media and company Public Relations “experts.” Find out what other traders are doing before you leap off the deep end and be sure to read everything with a good deal of scepticism to ascertain fact from fiction. There is a ton of information available on the web; the tricky part is making a study and analysing the data.