There was a man named Raj who wastaking a stroll when he came across abunch of ragpickers .They were scanningthrough piles of garbage and waste.
He realized they were searching forvaluable stuff that sometimes accidentlymakes their way into the garbage. Thispractice of the ragpickers reminded him ofa term in investing known as “BottomFishing”.
If we look at the stock market, the stockmarkets health is largely dependent upon“NEWS” flow reflecting the state of themacro-economic environment. In otherwords, a good macro-economicenvironment leading to good and positive“NEWS” flow improves “sentiments” ofinvestors.
No investor would like to invest whenthe economic environment is not conducivebecause the risks of investing in adverseconditions are rather high.Lets say a country which had favorablepolitical conditions, suddenly finds itself inthe throes of terrorism. Under suchcircumstances the stock market plummetsto a level that is commonly referred to asthe “bottom”.
At such times, the stock prices of perfectlyhealthy and robust companies also tend totest the bottom.The sentiments are so discouraging thateverything is viewed from the same“pessimistic” lens and all companies goodand bad get painted by the same “gloomyand gray” brush.
However, such are times that present thebest opportunities to astute investors.There are opportunities to identify stocksthat are quoting at prices below theirintrinsic values.
Such under-valued stocks can yieldhandsome returns when the negativity inthe macro-economic environmentalleviates.Identifying such valuable stocks in what ispopularly known as “Bottom Fishing” whichtranslates to “fishing for good companieswhen the markets bottom out.”
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