Can Someone Explain Top Down Investing?


#1

Would appreciate if someone explained the difference between top-down investing and bottom up with a few examples

Thanks


#2

Top-down investing involves looking at the broader economic picture rather than focusing on a few companies…

A hedge focusing on top-down investments, would looking to capitalise on macro-economic events. A recent example of this would be Ray Dalio’s Hedge Fund Bridgewater and their shorts on European stocks…

Rather than taking a position in one or two firms, it looks like the firm has taken a position in many leading European stocks. This probably means they are anticipating that European stocks are going to take a hit generally, rather than one or two stocks…

These funds will take either take positions in a basket of companies tied to an index, an index or a widely traded ETF…

They very rarely invest in one or two companies…

Top-down investing is the opposite style to Warren Buffett’s value-investing style. Buffett will find solid companies with good long-term prospects and invest in them at times of panic in the economic system and as a result picks them up fairly cheaply…

More often than not, these stocks prove to be great investments once a big economic panic has passed…

Here’s a list of a few macro-funds:

• Alan Howard’s Brevan Howard Fund - the largest macro-fund in Europe

• Mike Platt’s Bluecrest Capital

• George Soros’ Soros Fund Management

• Paul Tudor’s Tudor Investments

• Louis Bacon’s Moore Capital

• Bruce Kovner Caxton Associates