As we all know, the stock markets do not really favor anyone. In order to be in line with the markets and manage one’s long invested portfolio, it is quite necessary for everyone to simply follow some basic strategies to enter into any trade or manage one’s own portfolio.
Just for everyone’s information and learning, let us use this thread to share any financial concepts or strategies that may be one should know or have helped you to be better. You can write anything from the basics of the markets to the complex concepts with no ends and it wouldn’t matter. Surely, someone reading out there will be benefitted in one or the other way.
To begin with, one concept which I like is the Top-down and Bottom-up investing approach. Used to follow and read about this in my initial days of grad when I started learning about markets.
Top-down: Here, we look at the bigger picture first. This approach lays emphasis on looking at the economic trends of a country, the industry and then pick the stock for investment. This helps to be true as some of the industries/sectors are believed to perform well during certain economic cycles.
The emphasis is laid on macroeconomic factors such as GDP, inflation, interest rates, etc, and the sensitivity of different sectors to these factors. For example, if the domestic economy does well, it is believed that the financial and consumer discretionary industry may perform well.
Economy > Industry > Company.
Bottom up: Here, the main focus is intially towards the individual company, the industry and then the overall economy. The focus is less on the industry and the economic factors as one does an indepth fundamental study of the company to decide on its long term growth. This focus of this approach includes reading and analysing the financial statements, the growth of the companies, ratios, net profit margin etc.
Company > Industry > Economy