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Understanding Top Down and Bottom Up Investing
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Understanding Top Down and Bottom Up Investing

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  • 1. Understanding “Top Down” and “Bottom Up” investing TM – By Prof. Simply Simple “Top Down” and “Bottom Up” style of investing is one of the most common terms used in fund management. Hence I felt these would be relevant terms to explore
  • 2. Let’s look at an example. Let’s say Sam isa US based businessman wanting to set upa software business.
  • 3. For a software business he would needsoftware engineers. So instinctively hismind wanders to India which is knownhave an abundant supply of softwareengineers
  • 4. Once he has decided that it is India which shallbe the source of supply of software engineers,he then decides to contact an HR consultant inIndia to line up people. He then interviews theengineers one by one and makes his selections.
  • 5. In this example his decision to selectIndia as the source of softwareengineers represented the top-downapproach while the detailed selectionprocess involving interviews andreferences etc represents the “bottom-up” approach.
  • 6. In the event of fund management similarly thefund manager’s decision of investing inemerging markets would represent the “Top-Down” approach while the detailed selectionprocess of companies based on size, turnover,profitability, management quality etc wouldrepresent the “Bottom-Up” approach.
  • 7. So that’s “Top-Down” and “Bottom-Up” foryou. Hope you’ve understood the concept
  • 8. Hope this lesson has succeeded in clarifying the meaningof “Top-Down” and “Bottom-Up” approach to investing Please give me your feedback at professor@tataamc.com
  • 9. DisclaimerThe views expressed in these lessons are for information purposes only and do not construe to be of any investment, legal or taxation advice. The contents are topical in nature & held true at the time of creation of the lesson. They are not indicative of future market trends, nor is Tata Asset Management Ltd. attempting to predict the same. Reprinting any part of this presentation will be at your own risk and Tata Asset Management Ltd. will not be liable for the consequences of any such action.