Top-down investing is one of the popular investing approaches that many traders follow. In Top-down investment the trader finds suitable investing opportunities by analyzing deep from a big picture or a global view.
The procedure of top-down investing usually involves the following steps.
- Assessing of global economy strength
- Finding suitable economic regions by eliminating bad ones affected by war, internal tensions and calamities.
- More depth-analysis to find suitable countries with bright futures; can be done using analysis inflammation rate, health of stock markets, interest rates, employment, GDP etc.
- Find the health of stock market indices using fundamental and technical analysis tools. Important ones are dividend yields, price-to-earnings and price-to-sales.
- Find sectors of the country with right investment background. The comparison of growth of each sector (like mining, health care, IT services, technology etc.) with detailed statistics is done in this step.
- Finding the suitable companies with good stocks price range of the selected sectors, based on company performance.
Advantages of top-down investing include determination of ideal investment stocks, investigation and finding of market pros and cons, diversification of investment in different markets and different countries, etc. But the analysis procedure consumes time and money and it is possible that the finding may be incorrect. One another disadvantage is the elimination of really good companies form bad/low profit sectors.
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