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Wednesday, April 4, 2007Posts in the [Stock Made Simple] series:
A sector is a group of companies that loosely belong to the same industry and provide the same product or service, e.g. airlines, software, chemicals, oil, retail, automobiles, pharmaceuticals, etc. Understanding sectors is important if you want to make money in the stock market. The reason is simple: No matter how the market is doing and no matter what the condition of the economy, there are always sectors that are doing well and sectors that are struggling. Let’s take a very simple example, when oil price goes up, oil sector will do very well while airlines sector are struggling.
Some professional traders shift their money into and out of sectors every day. Once they identify the strongest sectors for the day, they pick what they think is the most profitable stock in each of these sectors. Like anything connected to the stock market, shifting into and out of sectors sounds easier on paper than it is in real life. It is easy to tell why a sector was profitable while another wasn’t when things already happened. However, it’s extremely difficult to predict, so it’s a lot harder to pick successful sectors than many people think.
Not only day traders shift their money around the sectors, medium and long term investors do so as well. I expect to learn more about the concept of “sectors rotation” for medium and long-term investment during the coming Wealth Academy program by Adam Khoo. I’ll definitely share with you about this topic after I learn.
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