Stock market investing is a science that takes time to be perfected and that it is precisely for this reason that there are a variety of strategies that have been developed by various analysts which help them pick up stocks and make lots of money using these stocks. That said there have been various long term stock picking strategies that have been employed by the stock market traders.
These stock market traders who invest in the long term look out for two main things. These two main things which drive the investing philosophy are fundamental research and the economic outlook. The fundamental research is a generally viewed as one which will give you the ability to spot some undervalued stocks in which you can invest and in a period spanning the next 10 years these stocks should be able to give you a good amount of returns. That said the fundamental research has two principles namely the bottom up approach and the top down approach.
The top down approach as the name suggests looks at the top level first. This essentially means that the analysts will look at the economy first and see if the economy is doing good or not. Then the analyst will look at industries which will do well in the given economy and then the analyst will look at the company's which will do well in the given sectors. It is these companies that the analysts will recommend you to buy.
The bottom up approach is exactly the opposite of the top down approach and the analysts using this approach generally pick a company and then see how that company is performing. They are generally not concerned about the state of the economy. This style is more suited for more aggressive investors as opposed to the more conservative investors who will generally go for the top down approach.
That said there is generally nothing wrong with both the approaches and the only difference lies in the way the people approach investing. It also depends on the risk appetite of the investor. For the beginners investing in the market you should always look at the middle path and gradually gravitate towards one or the other approach. For seasoned investors it is always better to stick to one approach.
Again a lot of research is also sometimes harmful so it is better at times to use your own gut feel for picking out a few stocks. Sometimes it can be better than research and can pay big dividends.
These stock market traders who invest in the long term look out for two main things. These two main things which drive the investing philosophy are fundamental research and the economic outlook. The fundamental research is a generally viewed as one which will give you the ability to spot some undervalued stocks in which you can invest and in a period spanning the next 10 years these stocks should be able to give you a good amount of returns. That said the fundamental research has two principles namely the bottom up approach and the top down approach.
The top down approach as the name suggests looks at the top level first. This essentially means that the analysts will look at the economy first and see if the economy is doing good or not. Then the analyst will look at industries which will do well in the given economy and then the analyst will look at the company's which will do well in the given sectors. It is these companies that the analysts will recommend you to buy.
The bottom up approach is exactly the opposite of the top down approach and the analysts using this approach generally pick a company and then see how that company is performing. They are generally not concerned about the state of the economy. This style is more suited for more aggressive investors as opposed to the more conservative investors who will generally go for the top down approach.
That said there is generally nothing wrong with both the approaches and the only difference lies in the way the people approach investing. It also depends on the risk appetite of the investor. For the beginners investing in the market you should always look at the middle path and gradually gravitate towards one or the other approach. For seasoned investors it is always better to stick to one approach.
Again a lot of research is also sometimes harmful so it is better at times to use your own gut feel for picking out a few stocks. Sometimes it can be better than research and can pay big dividends.
