Jane Andrews has investigated the economic conditions in the country of Semeria and is forecasting an economic expansion. She then investigates the valuations for cyclical stocks in this country. What equity research approach is she using? A) Bottom-up. B) A combination of top-down and bottom-up. C) Top-down. Your answer: C was incorrect. The correct answer was B) A combination of top-down and bottom-up. Jane is using a combination of top-down and bottom-up. She starts at the country level and after finding attractive economic conditions, she then drops down to the individual stock level to find stocks that are attractive based on their valuations.
Bottoms up bottoms up. Let me see your cup
wake2000 Wrote: ------------------------------------------------------- > Bottoms up bottoms up. Let me see your cup LOL, good song. Anyway, I think top down generally follows this format: economy > sector > security. You build your economic forecasts, choose which industries/sectors to invest in, then cherry pick individual securities. It seems like she went straight to cyclical stocks after reviewing her economic forecast. That question seems pretty nit picky, I would have guessed C as well.
CFAI will not set this kind of question and if they do, they will probably delete it. I can argue for and against why the answer should not be C.
If it were top-down, she would be investigating the economies of several or all countries to decide where to invest. In this example, she didnt start at that same high level.
me.tega Wrote: ------------------------------------------------------- > CFAI will not set this kind of question and if > they do, they will probably delete it. I can argue > for and against why the answer should not be C. I agree with me.tega, really controversial question.
Not controversial , first part is top down , second part ( valuation ) has to do with bottom up, so obviously the neither a. nor c. , leaving only b.
She then investigates the valuations for cyclical stocks in this country… That is the bottom up component