Take A Top-Down Approach When Investing
Tuesday, April 5, 2011, 2:00 AM | Leave Comment
Many financial gurus, websites and blogs have pointed out individual stocks that are good to invest in for 2011. Most people follow that when they select an individual stock. That’s fine and dandy. However, there is another way to make selection for your investments. First of all, select an industry. That way you can make a conscientious decision about investing.
This has also been a better strategy for diversification of your assets allocation. And in good times and bad times, diversification is the key to successful investment.
Investment types
Any industry has three major parts to it for investing. Most folks invest in one or all of the following:
You can further divide each type of investment into two kinds:
- Domestic (U.S.)
- International
Markets
Almost all industries, in turn, have multiple markets to invest in. So selecting an industry and then a market in that industry gives you a better investment strategy for diversification.
Some financial gurus advise to select industries for investing that are mutually exclusive. In other words, they are independent of each other. So if your investment is not doing well in the market of one industry, it will have no effect on another market in another industry of your choosing.
Obviously, you have access to information online. Educate yourself as much as possible.
As always, if you want to be on a path of financial success:
- To invest, find a good financial adviser.
- To be debt-free, find a good credit counselor.
Industry types
Choose an industry which you believe in. For example, if you are into environmentally preferable products and services, then look for those companies that belong to the green industry.
You can break each top-level industry further down by clicking on it.
- Banking & Finance
- Basic Materials
- Consumer Goods
- Consumer Services
- Green industry
- Health Care
- Industrial
- Oil & Gas
- Technology
- Telecommunications
- Utilities
Banks
Banks safeguard money and valuables and provide loans, credit, and payment services, such as checking accounts, money orders, and cashier’s checks. Banks may also offer investment and insurance products, which they were once prohibited from selling.
Financial Services
The finance industry encompasses a broad range of organizations that deal with the management of money.
- Asset Managers
- Consumer Finance
- Specialty Finance
- Financial Services
- Mortgage Finance
Insurance
In simple terms, insurance is guaranteed small loss to prevent a large, possibly devastating loss.
- Life Insurance
- Non-Life Insurance
- Full Line Insurance
- Insurance Brokers
- Property & Casualty Insurance
- Reinsurance
Real Estate
Unlike other investments, real estate is dramatically affected by the condition of the neighborhood where the property is located. With the exception of a global recession, real estate is affected primarily by local factors.
- Real Estate Investment & Services
- Real Estate Holding & Development
- Real Estate Services
- Real Estate Investment Trusts (REITs)
REITs is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.- Industrial & Office
- Retail
- Residential
- Diversified
- Specialty
- Mortgage
- Hotel & Lodging
Basic Materials
Most basic materials industries share a common problem: low profitability. In steel, pulp and paper, glass, and commodity chemicals, to name a few, periods of high profits alternate with heavy losses, yielding average returns that may not even cover the cost of capital.
Many accept this rollercoaster ride as inevitable; such, they say, is the nature of cyclical industries. But the truth is, poor management makes the ride rougher.
Basic Resources
- Forestry & Paper
- Industrial Metals & Mining
- Aluminum
- Nonferrous Metals
- Iron & Steel
- Mining
- Coal
- Gold Mining
- Platinum & Precious Metals
Chemicals
- Commodity Chemicals
- Specialty Chemicals
Consumer Goods
Any tangible commodity purchased by households to satisfy their wants and needs. Consumer goods may be durable or non-durable.
Durable goods (e.g., autos, furniture, and appliances) have a significant life span, often defined as three years or more, and consumption is spread over this span.
Non-durable goods (e.g., food, clothing, and gasoline) are purchased for immediate or almost immediate consumption and have a life span ranging from minutes to three years.
Automobiles & Parts
- Automobiles
- Auto Parts
- Tires
Food & Beverage
- Beverages
- Brewers
- Distillers & Vintners
- Soft Drinks
- Food Producers
- Food Products
Personal & Household Goods
- Household Goods & Home Construction
- Durable Household Products
- Non-durable Household Products
- Furnishings
- Home Construction
- Leisure Goods
- Consumer Electronics
- Recreational Products
- Toys
- Personal Goods
- Clothing & Accessories
- Footwear
- Personal Products
- Tobacco
Retail
- Food & Drug Retailers
- Drug Retailers
- Food Retailers & Wholesalers
- General Retailers
- Apparel Retailers
- Broadline Retailers
- Home Improvement Retailers
- Specialized Consumer Services
- Specialty Retailers
Media
- Broadcasting & Entertainment
- Media Agencies
- Publishing
Travel & Leisure
- Airlines
- Gambling
- Hotels
- Recreational Services
- Restaurants & bars
- Travel & Tourism
Green industry
Environmentally preferable products are goods and services that have a lesser or reduced effect on human health and the environment compared to other goods and services that serve a similar purpose.
Green investments are traditional investment vehicles (such as stocks, exchange-traded funds and mutual funds) in which the underlying business(es) are somehow involved in operations aimed at improving the environment.
Green investments can range from companies that are developing alternative energy technology to companies that have the best environmental practices.
- Alternative Energy Exchange-Traded Fund (ETF)
- Biodiesel
- Green Fund
- Green Equity Investments
- Carbon Credit
Health Care
Health care is the prevention, treatment, and management of illness and the preservation of health through services offered by the medical, dental, nursing, and allied health professions.
Health Care Equipment & Services
- Health Care Providers
- Medical Equipment
- Medical Supplies
Pharmaceuticals
Biotechnology
Industrial
Industrials is general term used in the financial markets to refer to companies manufacturing, producing, or distributing goods and services.
Construction & Materials
- Building Materials & Fixtures
- Heavy Construction
Industrial Goods & Services
- Aerospace
- Defense
General Industrial
- Containers & Packaging
- Diversified Industrials
Electronic & Electrical Equipment
Industrial Engineering
- Commercial Vehicles & Trucks
- Industrial Machinery
Industrial Transportation
- Delivery Services
- Marine Transportation
- Railroads
- Transportation Services
- Trucking
Support Services
- Business Support Services
- Business Training & Employment Agencies
- Financial Administration
- Industrial Suppliers
- Waste & Disposal Services
Oil & Gas
Oil and Gas industry consists of producers, equipment, services and distribution and alternative energy.
Oil & Gas Producers
- Exploration & Production
- Integrated Oil & Gas
Oil Equipment, Services & Distribution
- Oil Equipment & Services
- Pipelines
Alternative Energy
- Renewable Energy Equipment
- Alternative Fuels
Technology
For investment, technology industry consists of computer hardware, software and services.
Software & Computer Services
- Computer Services
- Internet
- Software
Technology Hardware & Equipment
- Computer Hardware
- Electronic Office Equipment
- Semiconductors
- Telecommunications Equipment
Telecommunications
Communicating information, including data, text, pictures, voice and video over long distance.
Fixed Line Telecommunications
Mobile Telecommunications
Utilities
A basic service such as electricity, gas, or water, or the company that provides such a service. Utilities are often regulated by the government.
Electricity
- Conventional Electricity
- Alternative Electricity
Gas, Water & Multiutilities
- Gas Distribution
- Multi-utilities
- Water
In a Nutshell
Rather than selecting an individual stock and not researching the industry it belongs to might not give a better return on your investment.
