You might have heard the expressions ‘top-down’ and ‘bottom-up’ applied to stock picking. Let me explain. Top-down research is what the economists and strategists do. They try and predict where the equity market will go by working out what earnings are going to do on average over some time period. Top-down is what I call “macro crap”, it’s interesting, it appears important, but it’s extremely time-consuming and of very little value add compared to picking and understanding individual companies. Bottom-up research is analysts visiting companies and working out the earnings number for an individual company and determining the value of that company’s stock and deciding whether it is a BUY or a SELL. Top-down is for institutional marketing purposes and helps you look smart at dinner parties. Bottom-up is for making money. In this article I explain how investors can use themes to increase returns, and examine three themes for the next year. (VIEW LINK)
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