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.
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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.