Published: 24th Sep 2024
By: Value Research
Broadly, there are two strategies by which one can invest in stocks – top-down and bottom-up. Let’s understand what they mean and which one may be the right approach for you.
Top-down investing involves assessing various macroeconomic factors in order to narrow down the companies to invest in. Some of these factors include interest rates, inflation, GDP, demand-supply gaps, etc.
Based on the prevailing market conditions, top-down investing helps you identify positive trends across sectors to invest in and sell off stocks in sectors that are currently underperforming.
With top-down investing, you need to closely monitor the ongoing trends and cyclical movements in various sectors. For a lay investor, this can be difficult, as you need to know how markets work.
If you are considering adopting a bottom-up investing style, all you need to do is pick a handful of companies, go through their annual reports, understand their growth potential and valuation and compare their performance with their peers.
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