We all want the best for our portfolio and it starts with a good sector allocation. This episode is the first of a series covering each of the 11 market sectors. You’ll be able to know their strengths and weaknesses; how to get the best of them and of course, Mike’s favorite picks.
Let’s start with the two consumers: Cyclical and Defensive.
- How each sector plays a different role in your portfolio.
- Strengths and weaknesses of both sectors.
- How can an investor get the best of the Consumer Cyclical and the Consumer Defensive sectors.
- How to look at those sectors when in recession or the risks related to each.
- Which stocks you should start your research with.
During the episode, Mike mentioned Alimentation Couche-Tard (ATD.B.TO) among his favorite picks. Here is the video he recently did about the company if you’d like to know more about it.
Do You Know Your Sectors?
I could probably write an entire book on sectors, but that would be an unnecessary mountain of knowledge to climb for anyone. Plus, you don’t need a book to understand how each sector works. What you need is a clear analysis guideline that will tell you what is important to know and how to make the best investment decisions. During this series, we will cover the following points:
An investment sector will group many different companies. They will then all be regrouped into industries as they share many characteristics. If you are overexposed to a sector (e.g. over 20% of your portfolio), but you invested in different industries, you may still be well diversified. For example, you can have a company in aerospace & defense, one in building products, another one in railroads, and the fourth one in tools and accessories. They are all part of the industrial sector, but the building products have little to nothing to do with the defense industry.
We will highlight what investors like most about the sector. Is it growth or stability or predictability? Each sector is different and offers its own unique opportunities.
Unfortunately, nothing is perfect. Each sector has its strengths, but also its weaknesses as well. Understanding those weaknesses will help you manage fluctuations and optimize the risk within your portfolio.
How to get the best of it
After combining strengths and weaknesses, we will show you how to position your portfolio to benefit from each sector. For example, most industrial stocks are cyclical. There are times where you can enter or increase your position in this sector to show stronger returns.
Those are not buy recommendations and I’m not looking at the current price before adding them as my “favorite”. The point is to give you an idea of what we like. Then, it will be up to you to determine which stock is best for your portfolio.
You can read more about the two consumer sectors right below.