Bottom Fisher

What is a Bottom Fisher?

A bottom fisher is an investor who searches for bargains among stocks whose prices have recently dropped emphatically. A bottom fisher is optimistic about buying these low-priced stocks because they believe that a price drop is temporary or is an overreaction to recent terrible news and a recovery is soon to follow.

Understanding the Bottom Fisher

A bottom fishers might attempt to track down stocks that the market has undervalued through fundamental analysis. Or on the other hand an investor may simply view a recent price decline in the stock as too aggressive and therefore they buy the stock reasoning it will recover (higher) soon.

Bottom fishers tend to be more active during a prolonged bear market where there might be stocks getting hammered lower through panic selling. When the market is dropping, or even plunging in a major way, numerous stockholders get nervous and impulsively hurry to sell, needing to empty their stocks so rapidly that they will accept practically any price.

For the bargain-hunting investor, this is the chance they have been anticipating. They are eager to pounce on this opportunity, and swoop in to buy at low prices.

While a bottom fisher might pick up some reasonable setups and make money, they are likewise trying to catch a falling knife. While an asset might have fallen a long way, or look great fundamentally, on the off chance that other investors don't buy it, and on second thought keep selling it, the price will continue to drop. Sometimes others know something the bottom fisher does not.

Bottom fishers need to do a ton of research, or follow sound technical or statistical patterns, to profit from buying declining assets.

Bottom Fishers Profit From Other Investors' Panic

Bottom fishers are eager for good deals. On the off chance that it is a fair setup, it comes without regard to the seller. The sellers dump at low prices, and the bottom fisher buys up the potential deal.

Unfortunately for the bottom fisher, it's hard to tell the difference between a bargain and a stock that has fallen for a fundamental reason. It is smart for these deal-seeking investors to do research and try to determine the factors that led to the price drop. They can then decide assuming the stock is likely to rebound in the near future or not.

For those bottom fishers who are not knowledgeable enough about the market or insightful enough to research the particular companies whose stocks they are considering, this type of investing strategy can be like rolling the dice. There is the potential for big returns, however there is likewise a decent chance that the stock might continue to do poorly.

Bottom Fishing Tactics

There are numerous unsuccessful bottom fishers. The successful ones use a strategy. The strategy they use varies, yet put the chances in support of themselves. It very well may be fundamental, statistical, cyclical, or technically based.

Fundamental bottom fishers might search for stocks that are trading at low price-to-earnings (P/E) ratios compared to prior readings. They may likewise search for favorable price/earnings-to-growth (PEG) readings which might show whether a stock is priced well based on the company's future earnings potential.

Technical traders might search for patterns that price is bottoming and starting to turn higher, for example, an inverse head and shoulders, a rounding bottom, double bottom, or cup and handle reversal.

Example of Bottom Fishing in reality

Macy's Inc. (M) commenced a long-term price decline in 2015. There were several times bottom fishers might have been lured in. They might have been able to capture short-term profits on rallies, at the end of the day the price kept dropping.

The main inverse head and shoulders was immediately followed by lower prices.

The second inverse head and shoulders saw the price rally for around 6 months before capitulating to selling pressure once more. There were likewise a triangle pattern than broke to the upside, however at that point fell shortly after.

Some stocks truly do pivot and head higher, yet others don't. Bottom fishers require stop losses to help control their risk in the event the stock they buy — hoping its a reasonable setup — keeps falling.

What is the Difference Between Bottom Fishers and Momentum Investors?

These two strategies lie on opposite ends of the spectrum. Bottom fishers attempts to buy near the bottom after the price has fallen. Momentum investors buy as the price of the asset is rising, expecting that the rise will continue.

Limitations of Bottom Fishing

Bottom fishing should be possible successfully, yet it is often referred to as getting a falling knife. People who attempt bottom fishing must have discipline to cut losses when the price doesn't reverse true to form. They likewise must have a sound method for determining when an asset could stop falling and begin heading higher.

Features

• Bottom fishing is attempting to buy near a possible bottom, getting a "reasonable plan" once a stock or other asset has sold off.
• Bottoming fishing is likewise referred to as getting a falling a knife because some investors get in too early. The price continues to fall, resulting in hurt/misfortune.
• Successful bottom fishing requires a strategy for determining when a stock might bottom and turn higher. Some investor prefer to hold on until the asset does really turn higher before buying.