a) What is bottom up stock picking and top down stock picking. The differences?
There are different ways to invest. However the most popular approaches to stock picking are Bottom up and Top down
Top down approach:
Here the fund manager takes a view on the overall economy and identifies certain segments within the economy that are likely to do well. He then allocates the portfolio to these segments. For eg: the fund manager may think that automobiles may do well in an economy that is recovering from its recent slowdown. In this case he will allocate more funds for automobiles.
Here the fund manager takes a view on the overall economy and identifies certain segments within the economy that are likely to do well. He then allocates the portfolio to these segments. For eg: the fund manager may think that automobiles may do well in an economy that is recovering from its recent slowdown. In this case he will allocate more funds for automobiles.
Bottom up approach:
Here the fund manager does not focus on macro trends. He remains focused on individual companies and businesses. If the individual businesses or companies meet his criteria on valuation and management style, then he will go ahead and invest, without worrying about macro economic trends.
Here the fund manager does not focus on macro trends. He remains focused on individual companies and businesses. If the individual businesses or companies meet his criteria on valuation and management style, then he will go ahead and invest, without worrying about macro economic trends.
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