Estimated reading time: 15 minutes
If you’re new to investing, it’s totally normal to feel a bit lost. There’s so much going on “what market to choose”, “which stocks to buy” and “where to even begin”. I know that feeling well. It took me years of theory to finally start my first investment. That’s why in this blog, I want to share a simple three-layer process that makes sense for me: “Top Down Approach”.
So, what exactly is the “Top Down Approach”?
It’s just a 3-step way to invest:
- Country
- Sector
- Companies
Big picture first, then you narrow it down until you’re picking the actual stock – some called it “stock pick”.
It’s basically like choosing food: you pick the area, then the cuisine, then the restaurant.
And the best part? You don’t need 10 different websites, or 20 tabs open. You can just walk through this whole process step by step inside the moomoo app. Everything in one place. You can sign up for a Moomoo account and deposit now using my link to get extra rewards for yourself!
TABLE OF CONTENTS
What You Need Before You Start
For the purpose of this blog, we will be using moomoo app as it is one of the best brokers out there.
If you don’t have one yet and are ready to start, here is something you wouldn’t want to miss. Moomoo Malaysia not only makes it easy for you to trade with minimal fees, it is also offering new users attractive sign up rewards like cash coupons and free shares with my exclusive code ZIET11. Sign up now!
Top-down Approach Analysis
Step 1: Start with the country
This is where a lot of beginners get confused.
“Why should I care about countries or politics if I’m just buying stocks?” Well it actually matters.
Take tariffs or trade wars, for example. When tariffs are imposed on imported goods things like steel or chips:
- Materials cost increase
- Manufacturing company expenses increase
From there, they usually have two choices: absorb the cost themselves or pass it on to consumers like you and me. Either way, profit margins shrink. And when profits drop, share prices often follow.
That’s why the overall economic environment of a country matters and why the Top-Down Approach always starts with the country.
Some investors even use a simple 40-30-30 rule:
- 40% focus on country-level macroeconomic factors
- 30% on sector analysis
- 30% on company analysis
You don’t need to follow this formula exactly, but it shows how important the “big picture” really is.
When looking at a country, ask simple questions:
- Does the government support free trade?
- Is the country well-regulated?
- Where is the country investing its money?
- Are policies encouraging growth and innovation?
These questions help you understand a country’s policy direction and business environment. which is also why many major companies choose to list in the U.S market. Its liquid, transparent market, and long-term support for business growth have helped companies like Google, Tesla, and NVIDIA scale the way they have.
To go a level deeper, you’ll need to look at some macroeconomic data, but don’t worry if this is new to you. You can check everything directly in the Moomoo app under the Macroeconomics Data section. It’s all neatly organised in one place, which saves you a ton of time jumping between different websites and makes it much easier to walk through the top-down process step by step.
GDP (Gross Domestic Products)
First up is GDP (Gross Domestic Product). GDP is basically a snapshot of how healthy an economy is, based on how much goods and services a country produces each quarter or year.
When GDP is rising, it’s generally a good sign:
- businesses make more money
- people spend more
- investors feel more confident in the market
And one part about GDP most people miss:
- Always look at real GDP, not nominal GDP
- Real GDP is adjusted for inflation
- Nominal GDP can look “big” just because prices went up
Don’t get tricked by big numbers that actually mean nothing.
CPI (Consumer Price Index)
Next is CPI, or Consumer Price Index. This one matters because it tracks the prices of things we buy every day.
CPI matters because it gives hints about what policymakers might do next, especially when it comes to interest rates. In the US, CPI is released monthly, along with PPI (Producer Price Index), which measures inflation from the business side.
Quick difference between CPI and PPI:
- CPI: what consumers pay
- includes shipping, taxes, distribution, and subsidies
- PPI: what producers pay
- doesn’t include those extra costs
When both CPI and PPI are rising, it’s a sign that inflation pressure is building. That’s usually not great for stocks, because it increases the chances that the Federal Reserve will raise interest rates to cool down the economy, which brings us to the next topic: the Federal Funds Rate.
Federal Funds Rate
Source: The Financial Analyst
Federal Funds Rate is the interest rate banks use when lending money to each other overnight. But for investors, it’s kind of a big deal. The Federal Reserve meets eight times a year to set this rate, using data like inflation, employment, and overall economic conditions.
When inflation is high, they usually raise rates to cool down the economy. Borrowing becomes more expensive, so people and businesses spend less. When the economy is slowing, they do the opposite and cut rates to encourage more spending.
That’s why every Fed meeting gets so much attention. The decision doesn’t just affect US stocks, it ripples through markets all over the world. Like it or not, the US dollar still runs the show. When the Fed moves rates, money shifts globally, currencies react, and even markets in places like Malaysia can feel the impact almost immediately. Everything is connected.
Economic Calendar
By now, you might be thinking, how am I supposed to keep track of all this without memorising everything?
Good news, you don’t have to. Tools like Moomoo’s Economic Calendar make this way easier. It shows upcoming events like GDP releases, inflation data, and Fed meetings all in one place.
If you tap into a specific event, like CPI, you can also see past data and trends, which helps you set expectations before the numbers are released. It makes planning ahead much easier and lets you react faster when the results come out. And yes, you can even sync it straight to your phone’s calendar.
Step 2: Sector
Once you’re done with the country level, the next step is looking at sectors. The US market has a lot of them, so instead of digging through endless news, a quick way to see what’s going on is using Moomoo’s heat map. It gives you a visual snapshot of which sectors are moving, based on things like market size and trading volume.
You can also switch between different time periods to see how sectors have been performing, which helps you spot trends without overthinking it.
This part is actually pretty interesting, because economies move in cycles. Sometimes certain sectors are hot, sometimes they cool off. That’s normal, and sector analysis helps you understand where we are in that cycle.
Business Cycle
Source: Encyclopedia Britannica
The economy usually moves in four phases: Expansion, Peak, Contraction, and Trough.
- During expansion, businesses grow and people spend more
- During contraction, things slow down and spending cools off
The tricky part? These phases don’t follow a fixed schedule, and no one knows exactly how long each one will last.
A good example is what happened during COVID-19. Lockdowns forced many businesses to shut down, pushing the economy into a recession. To support growth, governments rolled out aggressive fiscal and monetary policies, which helped the economy recover quickly and move back into expansion. But that rapid recovery also led to high inflation, which later forced policymakers to step in and cool things down.
We’ve all lived through that uncertainty of not knowing when things would go back to normal.
You can’t predict the future perfectly, but understanding the business cycle matters because different sectors perform better at different stages. That’s where the difference between cyclical and defensive sectors comes in.
Cyclical Sectors
Cyclical sectors move closely with the economy. Think industries like automobiles, airlines, and retail.
When people have extra cash, maybe a bonus just came in, they’re more likely to spend on things they want, like a new Tesla or online shopping. But when money feels tight, those purchases are usually the first to be cut.
That’s why cyclical stocks react strongly to economic conditions:
- High interest rates -> borrowing gets expensive -> demand falls
- Economic recovery -> consumers feel richer -> demand returns
When demand drops, share prices tend to fall. When the economy picks up again, these stocks often bounce back.
In short, cyclical sectors sell things people want, not necessarily things they need, which is why they usually perform best when the economy is doing well.
Defensive Sectors
Of course, not every sector behaves like this. Some sectors are much steadier. These are what we call defensive sectors. They’re basically the “won’t disappear” kind of businesses. No matter how good or bad the economy is, they keep running.
That’s because people still need things like healthcare, utilities, and daily essentials even during tough times. No matter how your boss adjusts your salary, you’re still buying toothpaste, painkillers, and drinks like Coca-Cola, right?
That’s why defensive sectors tend to be more stable. Demand doesn’t drop much, so these companies usually manage to hold up better when the market is weak or falling.
Once you understand the business cycle and how different sectors behave, it becomes easier to figure out where we might be in the cycle and which sectors fit your risk appetite and investment goals.
Step 3: Companies
Now we’re at the final step: choosing the company to invest in. This is where investing in individual stocks comes with higher risk compared to a whole sector or country. That’s why this step needs more attention, and this is where fundamental analysis comes in. It helps you understand a company’s true value by looking at what’s happening inside the business.
Fundamental Analysis
To analyze a company, you start with the basics: its financials. The three key statements to look at are:
- income statement
- balance sheet
- cash flow statement.
If you’re interested in a company like NVIDIA, you can simply search it on the moomoo app and see its financial performance instantly. There’s no need to download reports or run calculations yourself. The data is already presented clearly in charts, making it easy to compare performance over time.
You can think of these three statements as a company’s quarterly report card. Let’s go through them one by one.
Step 1: Income Statement
The income statement shows how much a company earns, how much it spends, and what’s left after expenses. The bottom line, known as net profit after tax (Net PAT), is the money that can be paid out to shareholders as dividends.
Looking at the Net PAT trend over time, such as the last few quarters, helps you answer one key question: is the company consistently making money, or slowly burning it? That gives you a clear sense of whether the business is growing or struggling.
Step 2: Balance Sheet
The balance sheet shows a company’s net worth by listing what it owns and what it owes. It follows a simple equation: Assets = Liabilities + Shareholders’ Equity.
This means a company finances its assets either by borrowing money or by raising funds from investors. Ideally, assets should be higher than liabilities, which shows the company can cover its debts using its own resources.
If a company were to shut down today, the balance sheet gives a rough idea of what it’s worth. The company would sell its assets, pay off its liabilities, and whatever is left belongs to shareholders. That remaining value is shown as Shareholders’ Equity.
Step 3: Statement of Cash Flow
The cash flow statement shows how money moves in and out of a company, similar to your bank account history. It breaks cash activity into operations, investing, and financing, and tells you how well a company generates and manages its cash.
This matters because a company can look profitable on paper but still run out of cash. Many businesses don’t fail because they stop earning money, but because they can’t cover day-to-day expenses.
We saw this clearly in 2023 when Silicon Valley Bank collapsed. Rising interest rates caused the value of its long-term bonds to fall, leaving the bank with large unrealized losses. When depositors panicked and withdrew their money all at once, the bank ran out of cash and shut down almost overnight.
The takeaway is simple: even big companies can fail if they don’t manage cash flow properly.
Stock Valuation
Once you understand the company itself, the next step is to look at its valuation. This helps you avoid buying a stock at an overly high price.
On the moomoo app, you can check this easily. Using NVIDIA as an example, head to Company and then Company Valuation, where you’ll see three key metrics:
- PS (Price-to-Sales)
- PE (Price-to-Earnings)
- PB (Price-to-Book)
These ratios help you judge whether a stock is reasonably priced or already overvalued. Moomoo also compares them against the industry average, which is useful for spotting hype-driven stocks.
For example, if NVIDIA’s PE is around 55 while the industry average is closer to 50, it may already be priced on the expensive side. That doesn’t automatically make it a bad stock, though. Different industries naturally trade at different valuations. For instance, the oil and gas sector typically has much lower average PE ratios. These numbers mainly reflect market expectations.
If you want to go a step further, you can also compare NVIDIA directly with other companies. Just click Compare, add competitors or related companies like AMD or TSMC, choose your preferred time frame, and see their performance side by side in one view.
Get Started with Moomoo
Now, ready to start trading? The moomoo app simplifies trading with low fees and comprehensive data. Sign up today with the exclusive code ZIET11 to unlock rewards like cash coupons and free shares before the campaign ends. If you’d like to learn more about Moomoo, I’ve also made a Moomoo Review 2025 video, so be sure to check it out on my YouTube channel!
Final thought
At the end of the day, investing doesn’t have to be complicated, especially when you’re just starting out. Once you break it down step by step, it becomes much easier to understand. It’s really just like planning where to eat, you start big, narrow it down, and make a choice that fits you best.
If you’re ready to start doing your own stock research, you can check out moomoo, where everything from macro data to company analysis is all in one place. They’re currently offering cash coupons and free Apple shares exclusively just for you, so if you decide to sign up, use my code ZIET11 to get extra rewards before the campaign ends.
If you prefer a video version of this article, I have made a video covering the exact same thing – do check it out here! Thanks for reading!
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*T&Cs apply. All views expressed in this blog are the independent opinions of Ziet, which are not shared by Moomoo Securities Malaysia Sdn. Bhd. (“Moomoo MY”). No content shall be considered financial advice or recommendation. Moomoo MY links are included in this post, through which referrals are made and I may receive certain commissions. Please contact Moomoo MY for more information.
