A top-down stock analysis is done by a stock broker who is trying to determine whether or not a particular company is a good investment. While it will take a long time to figure out what the stock is worth, the top down stock analysis procedure is fairly in depth. By using this type of stock analysis, the broker will determine how world events and world trends affect the individual stock in question.
This top-down stock analysis approach will start with global trends and work from there. Therefore, these analyses will usually look at what international markets are doing, and then at the stock market as a whole before making a decision about which stocks to invest in.
The people who are fans of top-down stock analysis claim that it is the best way to analyse since you will find out what areas of the stock market are most likely to experience growth. Once you know that, you’ll be able to pick and choose from amongst the companies within that subset of the stock market.
If you are looking to invest in a lot of different stocks, then the top-down approach is probably the best way for you to find a variety of industries that you can choose from in order to put together your portfolio. However, you should make sure that you don’t focus on just one industry, otherwise your portfolio will not be very diverse, and you’ll stand a chance of losing everything.
One thing to keep in mind is that even if you are doing top-down analysis, you will still need to do a little bit of bottom level analysis in order to find the best companies in each industry to invest in.
There is another way to analyse stock, and sometimes the other method will stand a higher chance of giving you a more diverse portfolio. However, the other method will put less emphasis on the prevailing market conditions.
Some people find that it does not actually help too much to analyse the market before investing. This does not mean that stock analysis is without its merits, however, you should always keep in mind that even the most well thought out analysis of the market can be easily proven wrong. The best stock market strategy is just to make sure that you have a diverse portfolio so that it is less likely that you’ll experience large losses.