HKSI Paper 8 Securities analysis question: giving little weight to the economy or sector trends

HKSI Paper 8Securities analysis

Mr Chan picks shares by studying each company's management, products and balance sheet, giving little weight to the economy or sector trends. Which approach is he using?

A Passive index-tracking selection
B Bottom-up fundamental analysis
C Top-down fundamental analysis
D Technical analysis of price trends

Show the answer and explanation

Answer: B. Bottom-up fundamental analysis

A bottom-up investor starts with the individual company, its management, products, competitive position and financial strength, and gives little weight to the economic cycle or industry trends. That is exactly Mr Chan's method. Top-down analysis would start with the economy and then the industry before reaching the company. Technical analysis would look at price and volume charts, not the balance sheet. A passive index tracker holds the shares in an index and does not select shares on their merits at all. Source: Standard bottom-up fundamental analysis (as at October 2026).

Common mistake

Assuming any company research means top-down. The direction matters: Mr Chan starts with the company and largely ignores the economy, which is bottom-up.

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