Topic: How To Invest

What is Pat’s commentary for the week of July 12, 2016

Article Excerpt

Successful investors generally understand that you have two basic ways to make investment decisions. Investment professionals call these two approaches “bottom-up” and “top-down.” When you use the bottom-up approach, you focus on what’s going on in the investment world. You might call this descriptive finance. Before you decide to buy or sell a stock, you delve into its earnings, dividends, sales, balance sheet structure, competitive advantages and so on. If you lean toward 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. Mostly you do that by zeroing 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” ideas and predictions get lots of attention in the media and in brokers’ research, so they tend to get “priced into” the market, as traders say. In other words, investors…