investment Top-Down vs. Bottom-Up

_*Sunday ki Pathashala*_

_Knowledge is Power_

*_Financial Literacy Series_*

25-June-2023 

*Top-Down vs. Bottom-Up*

When making investment decisions, investors can use a bottom-up investment analysis approach or a top-down approach.

*Bottom-up investment* analysis entails analyzing individual stocks for their merits, such as their valuation, management competence, pricing power, and other unique characteristics.

*Bottom-up investment* analysis does not focus on economic cycles or market cycles. Instead, it aims to find the best companies and stocks regardless of the overarching trends. In essence, bottom-up investing takes a microeconomic approach to investing rather than a macroeconomic or global approach.

The global approach is a hallmark of *top-down investment analysis.* It starts with an analysis of the economic, market, and industry trends before zeroing in on the investments that will benefit from those trends.

*Top-Down and Bottom-Up* Examples

In a top-down approach, an investor might evaluate various sectors and conclude that financials will likely perform better than industrials. As a result, the investor decides the investment portfolio will be overweight financials and underweight industrials. Then, it's time to find the best stocks in the financial sector.

Proponents of bottom-up analysis include Warren Buffett and his mentor, Benjamin Graham.

In contrast, the bottom-up investor may have found that an industrial company made for a compelling investment and allocated a significant amount of capital to it even though the outlook for the broader industry was relatively negative. The investor has concluded that the stock will outperform its industry.

(Forwarded)

Mutual Fund Investments are subject to Market Risk. *Consult Your Financial Advisor (Wealth Doctor) before Investing & Regularly for Portfolio Check-up...*

_"Sunday Ki Pathashala"_ is initiative by: -

_*Hitesh R. Pujara.*_

_*Baroda BNP Paribas Mutual Fund*_

Share: