Assessment Phase of an Investment Process

This is the third in a series of articles on Unpacking the Investment Process, which provide clarity about various aspects of the investment process of a professional investor. Here we investigate the Assessment Phase of an Investment Process.

Our previous article introduced our ACE approach to articulating an Investment Process. ACE has three phases, Assessment | Context | Execution.


We now look a bit deeper at the Assessment Phase.



The Assessment Phase seeks answers to the questions What? and Why?

  • What will we assess? A country? An industry? A stock? Why are we assessing it?
  • What have we concluded? Why have we concluded it?


When assessing possible investments, there are three main approaches.

  1. A Top-down Assessment looks at the investment prospects of broad exposures such as asset class, region, country, sector and industry.
  2. A Bottom-up Assessment looks each investment by factors such as valuation, quality, growth, momentum, yield and rating.
  3. A Thematic Assessment looks at emerging themes to assess forthcoming investment conditions. Popular current themes include climate change, population demographics, trade wars, rise of nationalism and the decline of democracy.


Any number of people can be involved in the Assessment Phase, depending on the firm.

In a large Investment Management Firm, those involved in the Assessment Phase could include Investment Professionals such as Company Research Analysts, Economists, Strategists, Quantitative Analysts, Credit Analysts, Portfolio Managers and the Chief Investment Officer (CIO).

In a smaller Investment Management Firm, it may include just one or more Portfolio Managers.

Risk Layer

Each phase can have a risk layer.

Assessment Risk is vital to some Investment Managers and completely ignored by others. Approaches include:

  • Assigning probabilities to different scenarios
  • Forecasting a distribution or range, rather than relying on a point-estimate

Investment View


The Assessment Phase concludes when an Investment View has been reached.

Different Investment Managers express their Investment View in different ways. Popular approaches include:

  • Investment Return, often a forecast over a specified horizon, such as +15% over 12 months, or -20% over 3 months
  • Investment Rating, such as 1-to-5, or 5-to-1 or A-B-C or Strong Buy – Buy – Hold – Sell – Strong Sell – Avoid

Ideally, all data related to an Investment View will be captured and stored. This will make subsequent analysis feasible, and potentially very useful.

Finally, the Investment View is an input into the Construction Phase.


Appendix: Definitions

We recently proposed that Definitions are the Tools of Clarity. Thus we provide all definitions used in this article.

[generic definition] An Investment is a thing worth owning as it is expected to generate a positive return in the future. Common investments include stocks, bonds, property and mutual funds.

[definition] An Investor is any person or entity who commits capital with the expectation of receiving positive financial returns from their Investments.

[definition] An Investment Decision is a decision to buy, sell, hold or not hold a specific Investment.

[definition] The Investment Process of an Investor is the set of steps they typically take to make each Investment Decision.

[definition] An Investment Management Firm is a specific type of Investor. It is a regulated organisation that is accountable for making Investments on behalf of its clients. Also known as an Investment Manager.

[definition] A Portfolio Manager is a person working for an Investment Management Firm who is responsible for making Investments on behalf of its clients.

[definition] An Investment Professional is a person working for an Investment Management Firm who is involved in its Investment Process, and may include Portfolio Managers, Company Research Analysts, Credit Analysts, Strategists, Economists, Quantitative Analysts, Risk Managers, Dealers and Traders.

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