• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Your Finance Book

Income Tax | Investing | Stock Market

  • Stocks
    • 10 reasons why share prices decline in the stock market
    • What to look for in growth investing strategy for better return
    • 10 things you must understand before buying stocks
    • Speculating Vs Investing Vs Saving
    • A beginner’s guide to understand stock’s value – Explained with examples
    • Mutual Fund Basics
  • GST
    • GST registration in India – all you need to know
    • Tax invoice in GST-A complete beginner’s guide for taxpayers
    • Input tax credit in GST – A beginners guide to claim ITC
    • What is inter-state supply of goods and/or services under GST
    • What is intra-state supply of goods and/or services under GST
  • Income tax
  • Tax Rates
  • ITR Due dates
  • About Us
  • Privacy Policy
  • Disclaimer
  • Terms of Use and Policies
  • Contact Us
Home / Finance / Top-down and Bottom-up approach of investing in share market

Top-down and Bottom-up approach of investing in share market

Last updated on March 29, 2014 by Editorial Staff

Share
Share on Facebook
Pin
Pin this
Share
Share this
Share
Share on LinkedIn

Investors in share market choose different approaches for their investment. These approaches are defined based on the choices that they make while picking up stocks. Some investors base their stock picking decisions on the basis of company’s performance and how well they can perform in future. Some others use to look at bigger economic performance and then based on that look for the companies to invest.

There is no right or wrong approach of investing. You cannot say which approach will work for you and which are not. You can get good return out of your investment if you develop your own system of investing. Now let us discuss two most widely used methods of investing in share market; 

Top-Down Approach

Top-down and Bottom-up approach of investing in share marketTop-Down is a broader approach wherein investor or fund manager use to first determine the industry or sector that will outperform others. Based on their forecast they use to select stocks from those sectors for their investment.  If such investor or fund manager forecasted a weaker economy then they may decide selling their investments for a better return by investing in defensive sectors.

As it starts from the top, you have to first look into the global economic performance and then within that how developing countries and emerging markets are performing. You can estimate economy performance of a country by predicting its GDP growth based on past record and future prospects. Some other things that you need to look at in addition to GDP is increase or decrease in interest rates, inflation and employment

Bottom-Up Approach

Top-down and Bottom-up approach of investing in share marketIn Bottom-up Approach, investors use to first look into the company’s fundamentals and then to the global economy before taking their investment decisions. In this approach, investors or fund managers use to ignore growth of the economy or industry and concentrate on company’s overall strength.

Rising uncertainty in market may force investors in selecting bottom-up approach wherein they pick up stocks with decent earnings growth, stock management and sound balance sheet. Price to earnings, price to sales and dividend yields are some of the other factors which investors look at while selecting company’s stock in bottom-up approach.

As financial experts suggest, every approach has its own pros and cons so one should not base their decisions on one approach. You need to build your own approach of investing that best fits your goals and objective.

Share
Share on Facebook
Pin
Pin this
Share
Share this
Share
Share on LinkedIn

Categories: Finance

About the Author

Editorial Staff at Yourfinancebook.com is a team of finance professionals. The team has more than a decade experience in taxation, stock market and personal finance.

Primary Sidebar

Financial Ratios

  • The 5 Best Investing Books for Beginners
  • Accounting tools you can use to choose a winning stocks
  • What are the tools and techniques used in financial statements analysis
  • Can Price to earnings – P/E ratio be used for stock investing
  • Why Price earnings to growth – PEG is used by investors
  • How Earnings per Share or EPS can help you
  • How to use debt to equity – D/E ratio
  • What is Interest coverage ratio

Don’t see a topic? Search our entire website:

Footer

Trending Now

  • What to look for in the financial statements before investing in stocks
  • How to manage fund while investing in stocks
  • A beginner’s guide to mutual fund investing
  • Why share prices move up and down in stock market
  • Price Action trading – How candlestick helps to read mass psychology

Email Newsletter

Sign up to receive email updates daily and to hear what's going on with us!

Privacy Policy

Stay In Touch With Us

  • Twitter
  • Facebook

Legal Disclaimer

The information available through this Site is provided solely for informational purposes on an “as is” basis at user’s sole risk. The information is not meant to be, and should not be construed as advice or used for investment purposes. Yourfinancebook.com does not provide tax, investment or financial services and advice. We make no guarantees … Continue Reading... about Disclaimer

Copyright © 2024 yourfinancebook.com · All Rights Reserved.