Bottom Up Analysis

Bottom-Up Vs Top-Down Analysis – These two analysis differ in where they first look to identify profitable investments. The bottom-up method looks first at the bottom of the market (superior individual companies) while the top-down method first looks first at the top (superior industries). A bottom-up analyst attempts to profit by identifying great individual companies that will outperform its peers. A top-down analyst attempts to profit by finding the best performing sectors of the economy and buying stocks in that sector hoping that those stocks will prosper along with their industry.

At MarketBeaters we do not overly emphasize what industry our selection is in. Our focus is on the selection’s individual performance relative to all publicly traded companies. There are many complex macroeconomic factors to consider when attempting to make a top-down market forecast. Most professional money manager’s and stock analysts have as much difficulty making an accurate industry forecast as they do beating the S&P500 Index. The technology meltdown of 2000-2002 is a prime example of this. Many so called market “Guru’s” claimed that the technology sector’s growth was unstoppable only to witness the worst downturn in the sector’s history less than 6 months later. To be successful as a top-down analyst you have to be right about both the stock and also the industry. We don’t want to limit ourselves to only stocks in sectors these so called experts think will do well in the short term.