Top-Down Investing

AAA

DEFINITION of 'Top-Down Investing'

An investment approach that involves looking at the "big picture" in the economy and financial world and then breaking those components down into finer details. After looking at the big picture conditions around the world, the different industrial sectors are analyzed in order to select those that are forecasted to outperform the market. From this point, the stocks of specific companies are further analyzed and those that are believed to be successful are chosen as investments.

INVESTOPEDIA EXPLAINS 'Top-Down Investing'

An investor may use different criteria when deciding to employ the top-down approach. For example, an investor may consider such factors as geography, sector and size. What is important with this approach is that a big picture perspective is taken first before looking at the details. Although there is some debate as to whether the top-down approach is better than the bottom-up approach, many investors have found the top-down approach useful in determining the most promising sectors in a given market.

RELATED TERMS
  1. Capital Markets

    Markets for buying and selling equity and debt instruments. . ...
  2. Investment Style

    The overarching strategy or theory used by either a retail investor ...
  3. Sector

    1. An area of the economy in which businesses share the same ...
  4. Bottom-Up Investing

    An investment approach that de-emphasizes the significance of ...
  5. Industry

    A classification that refers to a group of companies that are ...
  6. Economy

    The large set of inter-related economic production and consumption ...
RELATED FAQS
  1. What's the difference between "top-down" and "bottom-up" investing?

    Before we look at the differences between top-down and bottom-up investing, we should make it clear that both of these approaches ... Read Full Answer >>
  2. What is the difference between terminal value and residual value?

    For the purposes of business accounting or financial management, the terms residual value and terminal value refer to the ... Read Full Answer >>
  3. How can I find a company's EV/EBITDA multiple?

    The EV/EBITDA multiple for a company can be found by comparing the enterprise value, or EV, to the earnings before interest, ... Read Full Answer >>
  4. What is considered a healthy EV/EBITDA?

    While average EV/EBITDA values vary by sector and industry, a general guideline is an EV/EBITDA value below 10 is commonly ... Read Full Answer >>
  5. How can I find net margin by looking a company's financial statements?

    In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>
  6. How is the marginal cost of production used to find an optimum production level?

    The marginal cost of production can be tracked to show the optimal production level where per-unit production cost is lowest ... Read Full Answer >>
Related Articles
  1. Retirement

    Technical Top-Down Investing: Analyzing The Market

    The top-down investment strategy depends on economy and market strength. Find out what you should know before jumping in.
  2. Investing Basics

    Industry Handbook

    In this feature, we take an in-depth look at the various techniques that determine the value and investment quality of companies from an industry perspective.
  3. Mutual Funds & ETFs

    A Top-Down Approach To Investing

    Use a global view to determine which stocks belong in your portfolio.
  4. Mutual Funds & ETFs

    Top-Down Analysis: Finding The Right Stocks And Sectors

    The top-down investment strategy depends on economy and market strength. Find out what you should know before jumping in.
  5. Retirement

    Where Top Down Meets Bottoms Up

    Find the investing "sweet spot" by combining these two styles.
  6. Fundamental Analysis

    Apple’s Key Weaknesses

    While it seems that Apple is at the top of its game, several weaknesses have emerged that the company needs to address if it is going to stay on top.
  7. Investing News

    7 Companies That Pose a Threat to Apple

    Samsung, Dell, Google and many others are chewing away at markets that Apple helped define.
  8. Economics

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  9. Fundamental Analysis

    Calculating Valuation

    Valuation is the process of determining what an asset is worth.
  10. Economics

    Do Transport Stocks Signal a U.S. Selloff?

    The Dow Jones Transportation Average index has underperformed the broader DJ Industrials Average, leading some market watchers to speculate a selloff.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!