How does the approach of the three-step valuation differ for stocks vs. bonds?

Expert Solution

3 step valuation or top down valuation is focused at economy industry and company analysis and it will be trying to value the stock from the Macro perspective.

top down valuation approach will be different for stocks and bonds because stocks will be having various kinds of micro factors in the long run which will be considered after macro factors whereas bonds are generally associated with the investment for security of of principal and they are also invested for generating a regular rate of return whereas stocks are only invested after looking into valuations.

We do not analyse that bond is undervalued or overvalued whereas we will be trying to find the intrinsic value of the stocks after analysing the Macro Trends so we will also look for the Macro trend of economy in order to predict the movement of stock to large extent and stocks are mostly trying to to replicate the rate of return of of economy whereas bonds are often trying to move in opposite direction.

jeff jeffy answered 2 years ago

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