Discouraging the Top Down Approach when picking Stocks
Posted by HanaDaddy | Posted in Investment Tips and Ideas | Posted on 06/15/2009
Tags: investing, investor, picking stocks, stock market, stock picking, stocks, top down, value investing
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If fund managers have heard about the way in which to invest, you know a large number to take a top-down approach. First, decide how much of their portfolio allocated to stocks and how much to allocate to bonds. At this point, you can even decide on its mix of domestic and foreign. Next, decide on which industries to invest in. It is not until all these decisions were made that actually fall for analyzing any particular securities. If you think logically about this approach, but for a moment, recognize how silly it really is.
A set ’s earnings yield is the inverse of its P / E ratio. Thus, a stock with a P / E ratio of 25 has an earnings yield of 4%, while a stock with a P / E ratio of 8 has an earnings yield of 12.5%. In this way, a low P / E stock is comparable to a high? Bond yields.