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From the Ground Up

Published on 10/09/2020

We all interact with listed companies each day, from checking our phone in the morning, buying a coffee on the way into work, buying a new piece of clothing, logging into our computers, watching movies, or even that beer in the pub at the end of the day.

We all have opinions on each of these companies, often without really realising it, and it comes down to more than the branding or the logo. It’s about how that company makes us feel, how their products work, or their evolution and how many new worthwhile products they release.

When you think about it, we are all analysing companies each and every day.

This is why at Upside we believe that you don’t need to be a professional to know good stocks when you see them - you could just be a super-fan or a super-sceptic of a particular company.

Portfolio Manager and blogger Eddy Elfenbein has written about the benefits of a bottom-up approach when it comes to investing. By this, he means understanding the very basics of the company from its products and markets and slowly working up from there, towards balance sheets, valuation ratios and cash flow.

“The skill set one needs to be a shrewd stock picker doesn’t involve complex math or defending your political party. Rather, it’s closer to that possessed by an investigative reporter or a private eye.”

He says that the best way to understand a company is by walking into a department store and asking the person behind the counter what is popular, “Just by doing this,” he says, “you can learn a lot more than what a stock screener will tell you.”

Understanding the popular products and their markets are the foundational blocks. You can build up from there: deep diving into the companies, interrogating their financial statements, understanding their inner workings, their trajectory, reviewing their peers and competitors.

And if you think about all the companies you interact with on a daily basis, you’ve already done most of the leg work.

There’s a science to being right.

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