Jonas Elmerraji
If you have an interest in a particular industry, familiarize yourself with it. Each industry and sector has its own jargon, its own ratios and its own measures of performance. If you learn more about any industry as a collective, you'll be putting yourself in a position to better capitalize on readily available information.
Industry Investing If you are interested in investing in an industry -- or in several -- there are a number of things you might want to think about. Diversify!: From the day you became interested in investing, you probably heard that a million times. Which is why it's important to remember that investing in a given industry isn't diversification; it's concentration. Although investing in an entire industry can hedge, or protect against, some of the risk involved in individual stocks, it won't protect you if the bottom falls out of the industry you're investing in. One way to lessen the degree you're exposed to market conditions (such as the recent plight of the airline industry) is by engaging in sector rotation. Sector rotation is basically the act of moving your holdings from one industry to another to avoid a cyclical slump in your portfolio. As always, the old rule of diversification stands strong: There's no reason why you can't diversify your portfolio by investing among several industries or sectors. There was a time when investing in an industry was not as simple as buying an individual stock, but with the options available to investors today, that's really not the case anymore. In addition to investing in individual stocks, investing in an index fund or industry-mirroring exchange-traded fund (or ETF -- check StreetSmarts: What's an ETF?) is a great way to instantly buy a stake across an industry. Investing in individual stocks within an industry offers the greatest amount of flexibility, as well as the greatest amount of work. This is not recommended for most novice investors or for investors who are short on time. Cherry-picking stocks won't necessarily result in any better results than investing in an index portfolio. Industry index funds, on the other hand, provide a means for investing in an entire industry or sector in one fell swoop. The area of industry/sector investing is deep -- there's no doubt about that. Many a career has been born on the ability to make accurate judgments about sector and industry performance. The difference between an industry and a sector may be a bit subtle, but the effect they can have on your portfolio is nothing to sneer at. For more on the basics of ETFs, mutual funds, and other investing fundamentals, check out TheStreet.com University's Getting Started Section.
RSS
