- Top-Down Approach
- Bottom-Up Approach
Top-Down Approach of Stock Selection
- Macroeconomic variables such as monetary policy, inflation, economic expansion, wider developments before the particular stock.
- The investor searches for the variables, events, and possibilities that could be obtained therefrom.
Bottom-Up Approach of Stock Selection
- Start your research by examining individual businesses and then construct a portfolio tailored to specific characteristics.
- The investor prefers to concentrate on microeconomic variables in this investment strategy.
- They choose their stocks on the grounds of their choice of stocks factors such as numerous profits value, equity debt ratio, cash flows, quality management, etc.
- Before making an investment choice, study the analyst reports and other accessible research papers on such companies.
- They prefer to purchase and retain their assets as investors since they spend much time on particular stocks. In other words, their strategies may take time but might be more efficient at controlling risks and eventually increase risk-adjusted yields more focused on basic characteristics.