Top-Down Investing

 Our investment philosophy is based on one big idea - It is the Big Picture that makes the Big Difference

Research Productivity  |  Segmenting Global Markets  |  Graphical Presentation  |  Diversification by Strategy

 

Take a Guided Tour round the RouteMaps
Guided Tours

 

 

The pyramid alongside illustrates how the highest returns for the least effort can be achieved by concentrating on top-down investing strategies.

The vertical axis shows how much each layer contributes to overall performance.

The horizontal axis shows how much work is needed to analyse the subject.

Bottom-up company research requires the greatest effort. This is best delegated to professional fund managers.

Investors RouteMap is designed to maximise the payback on time invested by concentrating on the higher levels. 

Research Productivity

Numerous academic studies have show that it is the big picture that makes the big difference. By concentrating on top-down investing strategies, Investors RouteMap is intended to generate the best pay-off in terms of effort spent monitoring investments and thereby to make diversification into foreign markets an increasingly realistic opportunity for a wider audience. Our advice on global investing strategies is not only designed to help the user make a big difference to performance, but also to do so for a comparatively small investment in time.

"Some studies indicate that more than 90% of the variation in total returns can be attributed to the asset allocation decision", according to AIMR, the Association for Investment Management and Research, in a paper published in December 1998 entitled "Asset Allocation in a Changing World".

Top-down investment management may not only be a more efficient way to manage portfolios, but it may also be more profitable as bottom-up equity research tends to be over-optimistic. In addition our experience shows that individually successful top-down combinations of strategies can produce dramatic improvements in performance.

 

There is no one right way to segment world markets - different things matter at different times.

Market segmentation by asset class, georgaphy, economic sector or investing style

Segmenting Global Markets

While we concentrate on the big picture, there are several ways of looking at it. Investors RouteMap enables users to segment global markets in five different ways and provides comparative and compatible tables and charts of the components within each segmentation.

Each of these axis may rise or fall in importance at different times - usually in inverse proportion to the attention focussed on it in the investment world. In practice any one may dominate markets at different times, so our RouteMaps are designed to help subscribers exploit all these different types of market inefficiency.

  • Asset Class: Bonds, Forex, Shares and Alternative Assets
  • Geography: 39 Bond Markets, 29 Currencies, 51 Stock Markets and 25 Alternative Assets
  • Sector: Real Estate, Finance, Health Care, Technology, Resources, Gold, Utilities & Transport
  • Size: SmallCaps in Europe, Japan, UK, US & Worldwide
  • Style: Growth & Value Investing in Japan, UK, US & Worldwide

 

 

Database = 250,000  calculations every month


Distilling raw data into useful recommendations

Analysis = 14000 Charts
Advice = 51 Markets

Graphical Presentation

If a picture is worth a thousand words, thousands of pictures should be worth a library of books. Investors RouteMap does not claim to take into account every significant factor, but instead concentrates on a selection of crucial ratios chosen to improve the odds of making better decisions, easier, quicker and after comparing alternatives - thanks to the benefits of presentation as charts.

  • Easier - standardised charts are easier to understand than tables or text.

  • Quicker - use the Slide Show to flip through a selection of related charts.

  • Comparable - similar types of chart are used to analyse all members of any group.

Our objective is to funnel a large database of information into a manageable quantity of advice, as expressed in our Best Guesses for the investment outlook. In trade jargon, this investment strategy is known as "active quant".   Presentation as electronic pictures provides several major intellectual benefits.

  • Interpreting large volumes of data - typically our time series run to 430 data points, representing half a century of monthly data. Such volumes are difficult to grasp as lists of numbers.

  • Eliminating the pseudo-precision of specific numbers - charts show up the general trend and order of magnitude. This is as much as can be hoped for in the world of investment.

  • Multiple data series - using a range of colours makes it possible to present more complex charts than are legible using the traditional black & white print medium.

  • Comparative analysis - displaying identically formatted pictures in the same place sequentially facilitates comparisons between charts as the same type of information appears in the same place every time.

No investing strategy can work everywhere and all the time, otherwise its competitive edge would be arbitraged away, so the RouteMaps combine many different strategies.

 

 

Forecasts and Signals

Buy & Sell signals in red. Forecasts in orange

Diversification by Strategy

Before perusing the library of charts, users may wish to prepare their thoughts on profitable lines of enquiry, by reviewing the recommendations in Summary Tables. These are generated by aggregating the results of several different types of investing strategies, specifically: -

  • Technical analysis: This investment strategy is expressed in algorithms that combines moving averages, rate of change and overbought/oversold indicators is applied consistently for all countries and regions. Different algorithms apply for the various asset classes. They contain noise reduction features to minimise portfolio turnover. The signals are shown as red up and down arrows (see chart alongside).

  • Fundamental Analysis: Using econometric modelling techniques, this based on forecasting a Key Economic Factor or Earnings Per Share, that has been proved successful in explaining past performance. The same factor is used consistently across all countries and regions in these strategies. While the charts show the forecast direction, our recommendations are based on whether or not the trends are accelerating. The forecasts are shown as orange lines representing annual averages projecting in to the future (see chart alongside)

  • Investment Sentiment: This is a contrarian strategy, based on our library of some 500 indicators around the world. These analyse which types of investor are successful, and which types are not, in order to see what predictive value that may have a year into the future. These individual indicators are combined into a composite indicator for each market designed to predict market levels a year later.

  • Monetary Policy: These investing strategies applies a range of indicators to show whether liquidity is easing or tightening in each country. The indicators will vary depending on the investment perspective. This is not used for Investment Styles because it is country, not sector specific. The signals are shown as red up and down arrows (see chart alongside).

  • Seasonal Trading Patterns: This is a shorter term set of investing strategies where, for each country we have calculated cumulative performance throughout the year, based on the average of up to 36 years of past performance. A Buy and a Sell signal are each generated once a year at the annual trough and peak, relative to the long-term trend. These are presented as charts of average past performance.

  • Valuation: We measure the divergence between the current reading and the long term average of a key valuation ratio for each country. There may be up to six such valuation strategies depending the RouteMap. These ratios are shown as oscillators.

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Next Class

Top-down Investing Strategies is part of the free international investment seminar. Just follow the classroom signs alongside. At the end of each class, there is a sign to the beginning of the Next Class. You can join the classes at any stage, but logically, it is best to start at the top of this page which is the beginning of the seminar. If our use of English is not plain enough, you can check out key words and concepts in Alphabet Soup and Jargon.