In Investing from the Top Down, Anthony Crescenzi, esteemed financial author and chief bond strategist for Miller Tabak & Co., explains how to develop new, highly effective investment strategies by taking a macro view of the factors shaping industries and markets. Emphasizing the importance of economic and market cycles (as opposed to a bottom-up approach, which places valuation ahead of the big picture) top-down investing is better suited for today’s global economy and will likely become the dominant strategy in the future.
Introduction:
The world has become more complicated than it used to be, and investing has certainly become more complicated too. Luckily, there has evolved a way to empower investors and make investing simpler, a way of investing that has been around for ages but which only recently has reached critical mass and made it possible for everyone to use. Such is the promise of top-down investing, an investing concept that relies upon indicators which carry implications that are crystal clear and highly dependable thus making it relatively easy to devise investment strategies, especially for those with very little understanding of balance sheets or the world of finance in general. It is an investment approach that also fits perfectly with the evolution of our society, where attention spans for just about everything from television to newspapers and board games have shrunk. It is thematic investing, where an investor buys an idea first and then buys the stocks, bonds, currencies, real estate assets, and other forms of investment that fit with the idea.
Top-down investing is an investment approach that has a multitude of advantages over other styles of investing, including its for-midable counterpart, bottom-up investing, which relies mostly upon value investing, an investment approach that begins with scrutiny of the asset being bought. For example, in the case of corporate equities, a bottom-up investor would start with the idea that company XYZ might prosper enough to justify buying shares in the company which appear to hold value relative to the company’s prospects. From there, the investor would analyze the company from the “bottom up,” looking particularly at the company’s balance sheet, its cash flow projections, and so forth, and do so in the context of the share price to decide whether the shares are worth investing in. Yes, this takes a lot of work, and if you do the work, you probably will choose a fairly good number of investments that work. Given the rewards, it seems we should all do the work to ensure that we are making the best possible investment decisions.
The problem with bottom-up investing, however, is that investors don’t always have the tools to take on such a task nor do they have the time. How many of us truly know how to pick apart balance sheets? Who really wants to? Who in this day and age really has the time? I say, free yourself from this burden because top-down investing has proven itself to be a terrific way to formulate an investment strategy, and it is a strategy better suited for the twenty-first century than other styles of investing. I make this clear throughout this book.
Contents:
- Top-Down Investing Has Arrive
- The 2007 Credit Crisis: A Case in Point
- Globalization Makes Top Down a Must
- Thematic Trading and Investing
- Thematic Investing Using ETFs
- Central Banking Is a Top-Down Affair
- Filling the Gaps on Value Investing
- Diversifying Your Portfolio from the Top Down
- Do the Math!
- Other Reasons to Invest from the Top Down
- Sector Performance Is King
- Market Sentiment Is a Top-Down Affair
- A Golden Age for Macroeconomics Has Arrive
- The Top 40 Top-Down Indicators