pany itself
is more important in determining stock prices. Both factors
definitely influence stock prices but the degree of
influence is the issue.
The top-down approach or sometimes known as the
Economy-Industry-Company (EIC) model emphasises the market
over the company. It starts with the analysis of different
economies to determine which country could offer the
investor better returns. In the selected economy, it
searches for industries that provide better prospects and it
picks the best companies within these industries. The
top-down approach offers a systematic and structured way to
analyse stocks. It advocates that the economy and industry
effects are significant factors in determining the total
return for stocks.
The bottom-up or stock picking approach believes in
finding stocks that are undervalued which can provide
superior returns irrespective of the market and industry
factors. The company effect is the dominant factor in
determining stock return.
There is no overwhelming evidence to suggest which
approach offers superior returns to the investors. The most
important thing is that an investor is comfortable with a
particular method, understands its strengths and
limitations, experiments with it, finds that it works for
him and abides by the method.
(The writer is Investment Manager of Tat Lee Asset
Management Limited. This column has the support of
Investment Management Association of Singapore and the Stock
Exchange of Singapore.)
