Now that we’ve covered the top-down method, let’s pick some stocks. This chapter walks you through analyzing individual Financials firms using the top-down method presented in Chapter 6. Specifically, we’ll demonstrate a five-step process for analyzing firms relative to peers.
Every firm and every stock is different, and viewing them through the right lens is vital. Investors need a functional, consistent and reusable framework for analyzing securities across the sector. While by no means comprehensive, the framework provided and the questions at this chapter’s end should serve as good starting points to help identify strategic attributes and company-specific risks.
While volumes have been written about individual security analysis, a top-down investment approach de-emphasizes the importance of stock selection in a portfolio. As such, we’ll talk about the basics of stock analysis for the beginner-to-intermediate investor. For a more thorough understanding of financial statement analysis, valuations, modeling and other tools of security analysis, additional reading is suggested.