In stock markets, when the indices hit multi-year and multi-month lows due to some factors, generally traders and investors are advised to take the benefits of bottom fishing. So what is exactly bottom fishing. It is nothing but an investment strategy wherein an investor seeks to identify the near bottom point of a share i.e. in respect of its share price which is deemed to be highly undervalued or available at highly discounted prices.
The risky bet is made on the presumption that the decline or depression in the stock price is only for a time being and is likely to surge back in the near future in the wake of favorable conditions and yield profits for the investor.
Idea behind bottom fishing investment strategy
The main logic that pushes the investor into bottom fishing or make a speculation is that he assumes that the fall in price is more that that is commanded by the company's financials and is an outcome of some news that triggered the fall.
Bottom Fishing Is Value Investing
It is a value investment proposition as the cheapest stocks are betted on. The strategy is often related to a practice wherein price of a stock is drifted lower for triggering stop-loss orders. The process shall drag the price of the stock even lower, which will then by favoured by the individual triggering the fall and he shall bet it on such stocks.
Further, in the phenomena, the stock price will again move up over the mark at which the stop loss order was initiated.
Recently, Reliance Communication has defaulted on its loan payments to different banks and on the back of it, the company had come with its debt meeting plans which doesn't seem to impress neither the rating agencies nor the shareholder. So, despite lows made by the company's stock on the indices, bottom fishing in the stock is not recommended at this point in time.