Top-down investing
Top-down investors look at a country’s economy first and foremost. It is focused on the ‘big picture’—an overall view of which industries will perform best. The aim is to find which sharemarket sectors will do well from any identified economic trends. Once industries with favourable characteristics have been found, the investor then chooses companies within that sector which should benefit.
For example, a top-down investor might identify that mineral investment looks set to recover after a cyclical downturn. In that case he might buy shares in contracting companies which build mining infrastructure. The idea behind the top-down approach is that sectors go through cycles which might last a year or two, or sometimes longer. If certain industries will benefit from these cycles, then clearly the companies in those industries will, too.
Further Reading
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An article from Fortune/PBS explains what top down investing means and its shortcomings.
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Still confused? This article explains top-down investing in more detail and contrasts it with its sister, bottom-up investing.
