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WHAT IS AN INVESTMENT FORM? continued
You will note the emphasis placed on the fact that it is not off the shelf but rather the “suitability” for any “given investor”. In early articles that are available for free at www.cannainvestormag.com, the top-down approach and the bottom-up approach were discussed as well as Technical Analysis and Fundamental Analysis. A properly crafted Investment Analysis Form will take these into consideration. At a basic level, there are different types of Investment Analysis and once again I have found no better public domain source that explains it than Investopedia:
Types of Investment Analysis
When making investment decisions, investors can use a bottom-up investment analysis approach or top-down approach. Bottom-up investment analysis entails analyzing individual stocks for their merits, such as valuation, management competence, pricing power and other unique characteristics of the stock and company. Bottom-up investment analysis does not focus on economic cycles or market cycles firsthand for capital allocation decisions but instead aims to find the best companies and stocks regardless of economic, market or particular industry macro trends. In essence, bottom-up investing takes more of a microeconomic approach to investing rather than a macroeconomic one, which is a hallmark of top-down investment analysis.
Top-down investment analysis emphasizes economic, market and industrial trends before making a more granular investment decision to allocate capital to specific companies. An example of a top-down approach is an investor evaluating industries and finding that financials will likely perform better than industrials; as a result, the investor decides his investment portfolio will be overweight financials and underweight industrials. The investor then proceeds to find the best stocks in each sector. On the contrary, a bottom-up investor may have found that an industrial company made for a compelling investment and allocated a significant amount of capital to it even though the outlook for its broader industry was negative.
Other investment analyses include fundamental analysis and technical analysis. Fundamental analysis stresses evaluating the financial health of companies as well as economic outlooks. Technical analysis stresses evaluating patterns of stock prices and statistical parameters.