The truth is that the stock market is a basket of many different varieties of fruit! Stock Market Sectors do not move in concert. The best portfolios have their eggs in many baskets in terms of sectors. Most of us have domain expertise in one or a few related lines of business. However, that need not translate into the best investment behavior, because there are so many stock sectors out there in the stock market space.
Some sectors are mature and stable, yet who knows when lightning may strike? The third world is a special threat to managements which rest on the laurels of their predecessors. No company can be taken for granted and top investors keep taking fresh looks at all strategic sectors in which they have key investments.
Some sectors thrive on volumes with marginal value addition per unit of transaction. The economies of scale which they enjoy are subject to technological obsolescence, but they are known to yield surprising surges in returns on a regular basis. Other sectors declare dividends based on high margins more than on volumes, but they are always susceptible to new competitors and substitution. Life would be simple if we could find stock market listing of companies with large market shares and top margins as well, but such utopia is scarce in real life!
It is best to count on key factors for success. The latter varies from one sector to another, but learning of them, and finding ways of tracking company performance on these dimensions, leads to stable and superior returns for even the smallest of investors. Retail operators on the stock market must hone their strategic skills to keep pace with large and highly resourced teams which exert influence on companies by sheer weight of their deployable resources.
How do you evaluate and compare various sectors? How many do you have in your portfolio? Are there some which we have missed? Do you violently disagree with our remarks about your favorite sectors, or our praise for the ones you love to hate? Come on board and tell us what is on your mind!