Jonas Elmerraji
Financial companies are fond of using systems of industry classification that are somewhat different from those used in "administration" (our friends at the Securities and Exchange Commission and Internal Revenue Service). Two of the principal players in the industry/sector classification game are the Global Industry Classification Standard and the Industry Classification Benchmark.
The GICS was developed by Standard & Poor's and Morgan Stanley, while the ICB was the work of Dow Jones and the FTSE Group. While both systems are effective and very similar in the way they classify companies, it is worth noting that the ICB system defines an industry more broadly than it does a sector. From a federal administrative point of view, the end-all, be-all system for industry classification is the aptly named North American Industry Classification System. They're the ones responsible for those industry codes that you'll see on a company's 10-K
(the SEC still uses the codes from its predecessor) or tax return.
The NAICS is maintained by the U.S. Census Bureau, which reviews its list of included industries every five years. Its classifications run the gamut, from the broader sector-like classifications (such as agriculture) to notably specific industrial classifications (such as dry pea and bean farming).
Hierarchies for each of these systems can be found online at:
Industry Behavior
Regardless of the system you or your financial institution use, the important thing is that the classifications are used appropriately as the tools they were designed to be. Looking at stocks from an individual level does have its limitations, and that is why industries and sectors are so valuable.
When analyzing a stock, looking at it from an industry -- or even sector -- level can give you a wealth of reference in your analysis. Is the stock beating its industry? Is it beating its sector? While you may think that a retailer's profit margins are impressive compared with those of, say, an airline, unless you make those comparisons with the sector or industry the stock is in, you won't be getting as much relevant information from your comparison.
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