When one goes for fishing it is easy to catch fish from top but it is the catching of fish from the bottom of water which requires expertise and challenge, in case of stock markets bottom fishing term is used when an investor buys the stock which is plummeting to new lows every day due to variety of reasons like bad earnings, general recession in the economy, falling sales, top management worries etc.., so that investor can sell it when the stock rebounds from lower levels.
Example of bottom fishing is when due to general slowdown in the economy and pessimism prevailing in stock market the stock price of Microsoft is falling and it is trading at 52 week low due to panic selling by the traders as well short term investors than an investor can buy it in the hope that when economy recovers price of Microsoft stock will rise and the investor will make profit by selling the Microsoft stock or when in 2008 in financial crisis happened in USA due to Lehman Brothers many good quality bank and financial stock were beaten down and were trading at very low levels not due to their fault but due to panic in financial markets across the world.
Bottom fishing is a risky strategy of value investing because when an investor has bought the stock and the stock price bounce back immediately after an investor buys a stock than bottom fishing looks a smart strategy but when an investor buys a wrong stock as not every stock which falls will rise because in recession or bear market all stocks fall but when there is recovery in the stock market then only fundamentally sound stocks will rise and make new high whereas fundamentally weak stock will fall even further no matter whether it is bear or bull market.
Hence while following bottom-fishing strategy one should look at all the aspects as the stock market is not about only lower price rather it is a combination of fundamentals, technical and economy and an individual should take into account all the aspects before making an investment decision because bottom fishing is a double-edged sword while on one hand, it can give great returns if done correctly but on the other hand it can also result in locking of capital and losses for an investor.