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Ria Jain made post

Are there situations when the bottom up approach works better?

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Dia Deshpande answered.
2 years ago

The basic difference between top down and bottom up approach is that the latter is more stock specific. The argument that stocks can be economy agnostic and sector agnostic is true most of the time if not all the times. There are some basic rules that one needs to follow. In times of high volatility (say, VIX above 25), your bottom-up approach may not really work as the focus shifts towards predominant macro risks.

On the other hand, mid-cap stocks are more amenable to a bottom-up approach than to a top-down approach. That is because most mid-caps operate on a unique set of economic drivers which are not exactly connected to the broad macro-economy. We have seen stocks like Britannia and Lupin give phenomenal multi-bagger returns between 2010 and 2013 despite the markets being tepid overall. These had nothing to do with the macro-economy or the industry. These are unique company-specific stories.