Top Down Vs Bottom-Up: The Investing Strategy Right For You
When investing it is very helpful to have a playbook that you follow and you use to help make investing decisions. One way to look at investing is a Top Down approach where you consider what is happening in the overall economy and seeing how an industry might play out in this environment. A bottom up approach is when you consider one stock and it’s overall strength regardless of the economy.
Learn if you are a top down or bottom-up kind of investor.
Both portfolio management philosophies can result in widespread diversification or a focused group of core holdings. Both portfolio management philosophies can result in building up positions in a single area of the economy to the exclusion of others based upon circumstances and luck. There are a lot of people who have made a lot of money practicing one or the other investing strategy. You have to find the one that feels right for you and your circumstances, temperament, and resources.
A bottom-up approach can be as simple as looking at industry and deciding who the strongest player is for a buying opportunity or evaluating the weakest player in the industry that might become the strongest. A top down approach you can easily pick an ETF or a mutual fund for an industry that you think will take off in the future economy. For example if you think gold will take off then buy the gold ETF: GLD or if you think the shale boom will be the next big thing for the US then buy the US Oil ETF: USO. Always do you research before investing.
See which strategy you can use to increase your wealth.
About Shaun Archer Tatum Shaun works in corporate finance in New York City. He has done financial consulting for several start-ups and has worked at several Fortune 500 companies. He has contributed several finance/investing articles on Seeking Alpha which have been published on Yahoo! Finance.