Investor's Passport to Hedge Fund Profits: Unique Investment Strategies for Today's Global Capital Markets

CHAPTER 4

Key Strategies for Realizing Winning Returns in Foreign Equities

For the novice investor, the idea of analyzing a multinational company basically consists of going to Yahoo!, examining the P/E ratio, and making a determination on that basis as to whether they like the stock. For the hedge fund manager, it is a much more involved process. Not only do you have to consider the economic and company-specific data, you have to make a determination about the political and cultural differences within those countries. You do not have to commit to being a full-time money manager in order to effectively apply the lessons in this book, but it does take more time to set up quality systems and properly analyze a stock, particularly from a global perspective, than the average investor is willing to give.

To begin your research, you need to first decide the type of analytical methodology on which you will principally focus. There are two distinct schools of study in stock selection from a global perspective: bottom-up analysis and top-down analysis.

Bottom-up analysis is an investment approach that puts less weight on the significance of economic and market cycles, and more emphasis on the analysis of individual stocks. In bottom-up investing, the investor focuses his attention on a specific company, rather than on the industry in which that company operates or on the economy as a whole. The bottom-up approach assumes that individual companies can do well even within an industry that ...