4. Screening for Potential Equity Investments
d. describe the use of financial statement analysis in screening for potential equity investments;
When screening for potential equity investments, what is the difference between a bottom-up and top-down manager?
- Bottom-up manager are "stock-pickers" who look for stocks company-by-company. They don't care if it's an airline or a drug-maker, if the company meets their criteria they go for it.
- Top-down manager take a birds-eye view on the economy. They choose an industry group and individual stocks that are likely to benefit from large trends they see.
What is backtesting?
Backtesting is the process of testing a trading strategy on prior time periods. Instead of applying a strategy for the time period forward (which could take years), an analyst can do a simulation of his or her trading strategy on relevant past data in order to gauge its effectiveness.