Understanding Bottom-Up Analysis
The bottom-up approach is a popular strategy used by many investors and fund managers to make informed decisions about investing. It focuses on microeconomic factors and provides specific information on a company to make more informed decisions.Formula
Total Addressable Market (TAM) x Market penetration rate = Revenue OpportunityHow do I calculate the bottom up analysis?
Bottom-up analysis is a useful tool for assessing the potential of a business. It is a TAM sizing exercise that helps to calculate the revenue opportunity of a product or service. The formula for calculating the bottom-up analysis is Total Addressable Market (TAM) x Market penetration rate = Revenue Opportunity. The TAM can be calculated by estimating the total number of people who could use the product or service, and the market penetration rate can be calculated by estimating the percentage of those people who will actually use the product or service. Tools such as Sourcetable can be used to help with the calculations.
What is Bottom-up investing?
Bottom-up investing is an investment approach that focuses on analyzing individual stocks and ignores macroeconomic and market cycles.
What does Bottom-up investing involve?
Bottom-up investing typically involves analyzing a company's fundamentals, such as revenue or earnings.
Does the Bottom-up investing approach assume that individual companies can do well even in an industry that is underperforming?
Yes. The bottom-up investing approach assumes that individual companies can do well even in an industry that is underperforming.
What kind of strategies do Bottom-up investors usually use?
Bottom-up investors usually use long-term buy-and-hold strategies.
Key Points
How do I calculate bottom up analysis?
Total Addressable Market (TAM) x Market penetration rate = Revenue Opportunity
Bottom-up Investing
Bottom-up investing is an investment approach that focuses on analyzing individual assets. It is different from top-down investing, which looks at the broader market and economy to determine investments.
Focus on Fundamentals
The bottom-up approach starts with the fundamentals of an individual company, such as its financials, products, and services. It then looks at industry, economy, and market factors.
Outperforming in Poor Markets
The bottom-up approach assumes that individual companies can do well in an industry that is underperforming. By taking a more focused approach and analyzing individual companies, investors can identify opportunities even in difficult markets.
