Are you the top-down or bottom-up type? This may surprise you, but what we see here are two major schools of thought in the investment world. The top-down approach, as its name indicates, is an analytical process that goes from top to bottom and generally consists of three steps.
The world's rapidly growing demand for resources, influenced by high growth rates and urbanization in countries such as China, India and Indonesia, is resulting in higher overall commodity prices, particularly for fuels. Yet there are technologies available which can help to ease the demand for fossil fuels in developing countries and to produce goods and services more efficiently. These technologies can also reduce greenhouse gas emissions.
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They will also look at the performance of sectors or industries. These investors believe that if the sector is doing well, chances are, the stocks in those industries will also do well. A top-down investor might look at rising interest rates and bond yields as an opportunity to invest in bank stocks. However, the correlation of rates to bank stocks is not always positive.
Bottom-up investing is an investment approach that focuses on the analysis of individual stocks and de-emphasizes the significance of macroeconomic cycles and market cycles. In bottom-up investing, the investor focuses his attention on a specific company and its fundamentalsrather than on the industry in which that company operates or on the greater economy as a whole. This approach assumes individual companies can do well even in an industry that is not performing, at least on a relative basis.
Trades taken after a confirmation of a trend reversal are more prudent. But more often than not these reversal moves are generally unidirectional. The feeling is more pronounced when the reversal is from the bottom up.
The main aim of any investment strategy is to generate enough returns to help you achieve your goals in an appropriate time frame. But where do you start your search for shares? There are many different ways to assess shares, from size, industry or correlation to the wider economy, as well as more complicated approaches, known as fundamental analysis.
Online Stock Trading Guide. Using a "Bottom Up" approach for fundamental analysis means beginning your analysis on a microeconomic level right from the start, typically starting with a particular company itself. You would then move to consecutive wider economic levels until you reach global economic analysis. This contrasts with my previous article Fundamental Analysis Using a Top Down Approachwhich starts out as wide as possible and narrows down to a specific company.
Bottom-up investing is a strategy that overlooks the significance of industry or economic factors and instead focuses on the analyses of individual stocks and companies. Analysts will focus on the idiosyncratic, microeconomic circumstances surrounding the company or security. Broader macroeconomic themes will be secondary to the analysis or not used at all.
Top-Down or Bottom-Up? Major discussions took place over whether Members should adopt a 'top-down' approach, such as that favoured by the EC and Japan, or a 'bottom-up' approach, such as that advocated by Australia and a number of other Members. In paragraph 31 of the Doha Ministerial Declaration, Members agreed to negotiations, "without prejudging the outcome", on: i the relationship between existing WTO rules and specific trade obligations set out in MEAs.