Global Investment Opportunities: Alice Treehorn's Analytical Approach

Analyzing Macro Cycles, Governmental Influences, Industries, and Securities

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Question

Alice Treehorn, a portfolio manager for a private investment firm, uses a specific methodology for identifying investment opportunities. Specifically, Ms. Treehorn begins with an examination of macroeconomic cycles and the overall global investment environment. After promising areas have been identified, Ms. Treehorn then progresses in her analysis to an examination of governmental and regulatory influences in each geographical region, as well as the prospect for specific industries in each region.

Finally, the analysis concludes with an examination of specific securities.

Which of the following best characterizes the investment approach taken by Alice Treehorn?

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Explanations

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A. B. C. D. E. F.

B

The approach detailed in this example is best characterized as the "top down" approach. Securities industry professionals commonly use the top down approach to identify investment opportunities, and this method has a strong following in both the academic and professional arenas. The process involved in the top down approach begins with an examination of the macroeconomic environment, then progresses to governmental, security market analysis and industry analysis, and finally to an examination of specific securities.

The top down approach is contrasted by the bottom up approach, which begins with an examination of specific companies and their securities.

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