Topic: How To Invest

What is Pat’s commentary for the week of April 2, 2013

Article Excerpt

Successful investors generally understand that you have two basic ways to make investment decisions. They also understand that it pays to know which of the two you are using at any given time. Investment professionals call these two approaches “bottom-up” and “top-down”. Using the bottom-up approach, you focus on understanding what’s going on in the investment world. You might call this descriptive finance. When you think about buying a stock, you delve into its earnings, dividends, sales, balance sheet structure, competitive advantages and so on. Using the top-down approach—you might call it predictive finance—you downplay what’s currently going on. Instead, you focus on trying to figure out what happens next. You may disregard lots of details about stocks you buy. Instead, you’re likely to zero in on external factors such as stock-market trends, the economy, interest rates, gold and so on. Or, you may focus on a single key trend, event or detail. Top-down advisors can draw negative or positive conclusions…