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What are the three main approaches to investment used by professional investors?

1. Asset allocation. This is often called a "top-down" approach. It is based on the assertion that something like 90% of investment return is derived from the decision to allocate assets.

2. Stock picking. This is often called a "bottom up" approach. The idea is that to seek out the best stocks wherever they are.

3. Active management. This approach takes elements of both the previous approaches. It uses a basic asset allocation method, but tries to tweak the allocation towards individual stocks that are thought to be the best.

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