The Next Big Crash - Are You Prepared?

[godjira1]

Kelvesy, i suspect very unfortunately there is no easy answer to bottom up/top down effect on investment and also hugely depends on time horizon.

During the risk on/risk off years of 2009-2012 i suspect stock picking aka bottom up would have given you very little alpha.

[CityFarmer]

Sorry for the confusion. Ignoring the economic environment is fatal. I do spend time reading up on economic data (GDP growth, consumer spending, inflation, unemployment, etc), and industries. All of these contribute to the successes or survivability of the company. To put my point across, a well managed company in a sunset industry may not excel very well as compared to a normal company in a rising industry.

What is the differences between top-down and bottom-up apart from the steps which are in inverse? Or is the percentage of weightage given to each factor. e.g., economic, industry, company.

IMO, A "right" stock, needs to be "right" in management, "right" in business model, and "right" in price.

The first two "right" are mainly based on bottom-up, and the last "right" needs a combination of both, IMO.

[specuvestor]

My experience is that bottom up you are buying companies so u have to understand the companies well

Top-down means you are buying macros and sectors, so you buy the biggest or bluest in that sector. You dont really want company risk.

There are of course those who buy beta. Again in my experience beta always looks good on hindside, and subject to survivor bias data mining, and unlikely people will hold it through the whole cycle. A slower and steadier alpha actually helps the psychology of holding on as well.

[Drizzt]

hi specuvestor, does people buy high or low beta?

[specuvestor]

People who think they can time the market properly and do asset allocation properly go for high beta

hi specuvestor, does people buy high or low beta?

[gautam]

hi specuvestor, i dun know abt bottom up or top down. but my strategy is that i keep on buying all the time except when market is at or near all high. i seldom go liquid. some pple say i should take 3-4% pa off my portfolio and enjoy life and that i am silly to have so much cash stuck the the market.
i dunno wat sort of investor u wld call me?

[specuvestor]

hi specuvestor, i dun know abt bottom up or top down. but my strategy is that i keep on buying all the time except when market is at or near all high. i seldom go liquid. some pple say i should take 3-4% pa off my portfolio and enjoy life and that i am silly to have so much cash stuck the the market.
i dunno wat sort of investor u wld call me?

Index or random walk practitioner

But seriously since you look at long term dividend growth I think you are more a bottom up guy. For sure if markets come off, fundy stocks will also get affected, saying otherwise is either delusional or you are a relative performance fund manager But over a cycle of say 10 years you should be ok, IF you believe the world will be better in 10 years time ie STI go higher highs over time. That's why Buffett keeps emphasizing US track record of getting better.

OTOH for SURE market timing adds value. And I'm not talking about day to day or even month to month market timing. By your own confession you are also doing market timing ie "when market is at or near all high"... what makes u think it wont go higher But generally if you take long term view and do asset allocation properly (ie you would also buy at market top if your equity portion of your net worth drops from say 50% to 30% for some reason and your neutral stance is more like 50%, or vice versa) you should do ok. Because you never know if market can be irrational for longer than you think, or simply you are WRONG.

My 2cts opinion on a subject that's more an art acquired through experience rather than hard science

[gautam]

thanks specuvestor, u made me rethink whether i shd continue buying when market is deemed to be at a high. hmm..afterall, its paying not from my own pocket but using opm ie dividends. (though not everyone wld call div income opm)

[Drizzt]

People who think they can time the market properly and do asset allocation properly go for high beta

hi specuvestor, does people buy high or low beta?

ah i see. thanks.

[Temperament]

If you are a trader which beta you favour?
If you are an investor which beta?
Is high beta perform better than low beta stocks in the long run?