Top Down


I had to be in the car toward the end of the market session yesterday and I heard a segment on the radio (CNBC on satellite) that included a value manager of some sort. He made a comment that I think sums up the difference between top down and bottom up very well.

He said (and I am paraphrasing) this is a time to seek out the stocks that can do well in this environment.

Finding stocks that should do well during a bear market is not easy to do. Finding stocks that are doing well during a bull market is pretty easy to do (not talking about beating the market just talking about stocks going up in a bull).

Anytime the market is on its way to a bear market decline I think just protecting what you have makes more sense and is easier to do than, for example, finding the one or two bank stocks that are up over the last 12 months.

The big macro is that stock markets go up most of the time (this sets aside the discussion of whether returns will be lower than normal or not). People that save enough, capture the market over long periods of time and avoid major panic sales at the wrong time are very likely to have what they need when they need it.

Again that is the big macro. From there the details fill in with things beyond the individual (market related) and things that are solely about the individual (savings rate and tolerances). Given that simplicity, there are times where growth should be the priority and times where protecting assets should be the priority.

Yes a bank stock that is not over leveraged, does not have toxic paper anywhere in sight and is not diluting itself should probably go up but should relies on a lot of things and just because it should does not mean that it will.

Conversely there have been segments that have gone up since the S&P 500 peaked last October. Money has flowed into things like fertilizer, oil, commodities and certain foreign markets. There was a perception (valid or not, doesn’t matter) that demand for these things was going up. And while it would have been difficult to find a bank stock that is up in the last year it would be difficult to find a fertilizer stock that is down in that time.

The takeaway for me is, and has been, always maintain a diversified portfolio but have less exposure when protecting assets should be the priority.

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Top Down


I had to be in the car toward the end of the market session yesterday and I heard a segment on the radio (CNBC on satellite) that included a value manager of some sort. He made a comment that I think sums up the difference between top down and bottom up very well.

He said (and I am paraphrasing) this is a time to seek out the stocks that can do well in this environment.

Finding stocks that should do well during a bear market is not easy to do. Finding stocks that are doing well during a bull market is pretty easy to do (not talking about beating the market just talking about stocks going up in a bull).

Anytime the market is on its way to a bear market decline I think just protecting what you have makes more sense and is easier to do than, for example, finding the one or two bank stocks that are up over the last 12 months.

The big macro is that stock markets go up most of the time (this sets aside the discussion of whether returns will be lower than normal or not). People that save enough, capture the market over long periods of time and avoid major panic sales at the wrong time are very likely to have what they need when they need it.

Again that is the big macro. From there the details fill in with things beyond the individual (market related) and things that are solely about the individual (savings rate and tolerances). Given that simplicity, there are times where growth should be the priority and times where protecting assets should be the priority.

Yes a bank stock that is not over leveraged, does not have toxic paper anywhere in sight and is not diluting itself should probably go up but should relies on a lot of things and just because it should does not mean that it will.

Conversely there have been segments that have gone up since the S&P 500 peaked last October. Money has flowed into things like fertilizer, oil, commodities and certain foreign markets. There was a perception (valid or not, doesn’t matter) that demand for these things was going up. And while it would have been difficult to find a bank stock that is up in the last year it would be difficult to find a fertilizer stock that is down in that time.

The takeaway for me is, and has been, always maintain a diversified portfolio but have less exposure when protecting assets should be the priority.

Submit a Comment

Your email address will not be published.

WP-SpamFree by Pole Position Marketing