Bottom-up investing is hard work and boring

Much of the fundamental rules we have so far reviewed on bottom-up investing consisted of commonly known market principles. Nonetheless, these are the very rules that are oftentimes taken for granted or even totally neglected.

Take for instance the principle of following what stocks dominant market players are buying or selling.  Stock picks of dominant players ideally serve as a good guide to stocks.  They are not only popular by prospective.

The same is true in what they are selling.  Stocks that are out of their favor soon turn out to be the market’s laggards.

Yet, how many times have we tried to pick up and/or ride on stocks based only on someone’s tip—like from a relative or someone’s relative, a friend or the friend of a friend, a neighbor, and so on?

Also, how many times have we picked up a stock that suddenly bursts into active play only to be trapped and unable to sell later due to its small and erratic trading volume?

Volume is an important factor to consider in picking up a stock.  Consistent good volume assures ease of entry and timely exit even for the sake of taking a hit just to save on more losses.  In the investing process, volume certainly plays a crucial role in the growth and preservation of capital.

Another is the wisdom of choosing a stock on the basis of one’s familiarity with its company business or services.   Needless to say, competence is imperative in stock investing.

These oversights arise from a common mistake: Ordinary investors often have the wrong notion about stock investing. In figurative language, many investors treat their role like doing a secret service agent’s thrilling task rather than doing plain police work.

To find answers, secret service agents make the swift and exciting mystical process of connecting the dots, so to speak.  With police work, answers must be supported by hard evidence.  Thus, answers in stock investing through the bottom-up approach are arrived at through a long tedious work unlike through the short, witty process of perception practiced by super sleuths.

Bottom line spin

Indeed, bottom-up investing is hard work and boring.  It goes through distilling steps of data gathering for answers.   And this is achieved by knowing where to get them.

First of these sources come from printed publications.  Printed publications still form the backbone of most individual investment research.  Some, however, are now electronically published.

These publications usually come from the research outputs of stock brokerage houses.  Big stock brokerage firms, whether foreign or local, maintain a regular publication of stocks they recommend. They are available either through print or via electronic medium.  These research studies are usually distributed to clients. Some investors place a portion of their play money in these firms in order to avail of the reports.

Another source of data would be the newspapers of general circulation.  Just about every newspaper includes stock tables and company updates.  These newspapers have the latest numbers right there for you.

Listed companies also maintain their own websites.  You can browse these websites for more details.

The Philippine Stock Exchange has its own website. It’s one of the primary sites you can access to get hold of market data.  It is complemented by another website, the PSE Edge.

International financial news and media companies like Bloomberg and Reuters are also good sources of market data.  They are accessible through the internet.

Morningstar is a special publication that has some local market information, too.  Their reviews are good and timely. Its publication also focuses on strategies used by successful investors and tries to put those into usable forms.

There are other sources available out there but we already have enough to help us form our own decisions and judgments.

How we will be able to form our own decisions and judgments on our stock investing activities using bottom-up investing will be our final subject next week.  Don’t miss it.  You may not be able to see it again.