Stock Investment: Top Down Approach, Bottom Up Approach Which Will Help?

We have often heard mutual fund managers and leading stockbrokers choose to invest in stocks with a top down approach and a bottom up approach. What it is Top Down Approach, Bottom Up Approach. Based on these we will look in detail at how to choose stocks for investment. Top Down Approach Mode .. Top-Down Approach can be referred to as the Top-Down Approach in Tamil. Its operation can be abbreviated as ESC (Economy - Sector - Company). That is, we must first examine the economy. That is, we need to examine whether the domestic and global economic situation is conducive to equity investment. If domestic and international economic growth is positive and positive, the next step is for the sector to decide which sector to invest in. We need to choose the sector that has the potential for bright growth in the future. After selecting the sector you should select the company that will excel in that sector and have the potential for growth in the future and invest in its shares. Investors who follow the Top Down approach in the investment world are paying close attention to the macro economy and its cycle. Such investors want to invest in consumer-oriented sectors.Bottom Up Approach Method Bottom-Up Approach can be described as a bottom-up approach in Tamil. This can be abbreviated as CSE (Company -– Sector - Economy). That is, one must first find a company that has the potential for growth in the future. The next step is depending on which sector the company belongs to. It remains to be seen whether its future will be better. The domestic and global economic situation should be examined if the sector is to be better. The decision to invest in that particular stock will be made if that is even better. The bottom line is that a good corporate equity investment can create wealth for the investor if the economic situation is not good. Economic growth is not good and macro stock indices like Sensex and Nifty are generally likely to fall during periods of sluggish economic growth. At the same time, companies with higher domestic consumption and demand (e.g., increased demand for drugs due to corona spread, increased demand for IT service due to curfew) will be better off. For example, some stocks like ((specific instances like TTK Prestige, Eicher and Indo Count) can be mentioned. These stocks have given good returns during periods when the overall market is not performing well. When the stock market is up (up or down) due to macro factors, the top up approach helps in choosing the stock investment. The macro factors here include interest rate change, employment, inflation rate, GDP. International markets plummeted in 2008 during the global economic crisis and financial crisis caused by the US sub-prime problem, such as home loans to the ineligible. Similarly, international stock markets fell in December 2015 as the US raised interest rates after a very long hiatus. The P / E ratio of leading stock market indices tends to fall sharply during such periods. The valuation of the shares will also be attractive. Thus, the shares are available at affordable levels i.e. at affordable prices. The Top Down Approach works best in situations like this. Investors who follow a bottom-up approach are often the ones who buy company shares and keep it for a long time and make a profit. They are the ones who have the most understanding of the fundamental matters of specific companies. Which approach is right when?The Top Down approach goes from general to specific. This is the bottom-up approach that goes from exclusive to general. When there is high volatility in the stock market, the bottom up approach does not work properly. Then it is wise and profitable to switch to a top-down approach. At the same time, when choosing mid-cap stocks, it is best to follow a bottom-up approach rather than a top-down approach. The reason is that it has little to do with the operations of most mid-cap companies and the sprawling macro-economy. At the same time, when choosing large-cap company stocks, the bottom-up approach is more of a top-down approach. The Top Down approach seeks opportunities to invest in market cycles. The bottom-up approach is looking for opportunities to invest in the strengths of companies' fundamentals. Since the financial status of companies and the availability of credit assistance depend on macro factors, both economic factors are scrutinized. In general, fund managers place a greater emphasis on economic growth but also adopt a bottom-up approach when it comes to stock selection. Those who choose stocks for investment should choose the top down approach or the bottom up approach considering the circumstances. Only then can the right stocks be selected for investment. Things to look out for in a departmental study ..! After selecting the development sector, the sector should look at the production costs and pricing of the products. It is important to note that not all companies can enter that particular field normally. Stockbrokers and fund managers avoid that sector if even ordinary people can succeed in it. The reason is that if everyone can enter and win, the price of the product will have to be set very low. Then the company's profit margin will be reduced. In addition, the threat and weakness of the sector should be examined. Investment experts exclude sectors with high government control. Things to look out for in the selection of companies ..! When choosing a company for equity investment, it is important to consider the company's expense ratio and profit margin. It is also necessary to examine the cash flow of the company, the amount of credit, the background of the founders and the management of the company.

No comments:

Post a Comment

R K G Capital Gains

Certified Equity Research Analyst, Technical Analyst , Investor , Trader , Trainer and Mentor

Technical Analysis | Nanayam Vikatan

Wealth Management! | Money Management Tips & Tricks | Nanayam Vikatan

Search This Blog

Powered by Blogger.
  • ()
  • ()
Show more

Nifty 20july24 weekly chart

Nifty 20july24 weekly chart we had a breakout of the channel after election results and the support is 23600 zone.

Recent Posts