Definition of top-down approach to investing

method in which an investor first looks at trends in the general economy, and next selects industries and then companies that should benefit from those trends. For example, an investor who thinks inflation will stay low might be attracted to the retailing industry, since consumers' spending power will be enhanced by low inflation. The investor then might look at Sears, Wal-Mart, Federated Department Stores, Dayton Hudson, and other retailers to see which company has the best earnings prospects in the near term. Or, an investor who thinks there will be rapid inflation may identify the mining industry as attractive, and then look at particular gold, copper, and other mining companies to see which would benefit most from a trend of rising prices. The opposite method is called the bottom-up approach to investing.