Top Down vs Bottom Up
I was just reading an article on Investopedia about their approach to investing.
http://advisor.investopedia.com/news/05/top_down_approach.aspx
So it set me thinking, which method is better?
Top down seems to be good. Pick stocks in an industry which you think will perform, and even if you manage to hit the laggards in the industry, they will still perform, albeit not that spectacularly.
Bottom up seems to be good. Naturally bottom up analysis does not exclude industry analysis. If there is no industry-destroying/dampening event in the forseeable horizon, could it be that your stock pick will do well at the expense of its competitors? doesn't that make the performance even sweeter?
Perhaps top-down stock picking is more conservative, and bottom-up being higher risk + higher returns. But then again, when you think about the dot-com boom, even the laggards of the dot-coms were spectacular performers.
I guess top-down might be superior afterall. The only issue would be that it limits you to certain "predictably healthy" industries.
