Market Sectors

Celticheart Investor

A beginner's guide to trading and investing

So How do you choose which market sectors are right for you. There is no short answer to this one and I suspect the answer would be different for most people in any case. There are many factors that influence the value of companies and their share price, some of these are specific to individual companies but for now we are looking at the broader issues that affect sectors of the market.

Don't restrict yourself to reading the financial pages for your information would be my advice, there are many issues, local, national and global that can play an important part in shaping these sectors. Often they have little to do with the companies you are going to invest in directly but the knock-on effect should not be underestimated.

To give you an example, let's look at Gold, traditionally this market sector has always done well in a recession, simply because, as paper currency gets devalued individuals 
and countries alike turn to this precious metal as a stable and durable form of investment, either in gold itself or gold funds. Currently Gold is heading for $2,000 and ounce and speculators say it could reach $2,500 in the foreseeable future. This raises the question of course why did Gordon Brown sell off half of our gold reserves for $275 an ounce? (but lets not go there)

http://www.moneyweek.com/investments/precious-metals-and-gems/a-beginners-guide-to-investing-in-gold

It could be equally said of the Oil and gas sector that it is world politics and instability that brings the biggest change. Right now the USA is undergoing a radical change in its thinking about Oil and gas. It's domestic consumption has rocketed, largely due to new and innovative techniques such as "Fracing" and horizontal drilling. The USA has already surpassed Russia in its production and is now second only to Saudi Arabia.

The US government have already stated its intent to become, not only energy self-sufficient but a major exporter of Oil, Gas and most significantly GTL (Gas to liquids)
by 2020. It does not take a lot of imagination to see the investment opportunites there.

http://energytomorrow.org/economy/#/type/all

Political instability has been at the route of oil and gas prices for a very long time, largely to do with the Western world's high dependence on the Middle East. 

In simple terms, the demand for reliable and environmentally friendlier energy sources is increasing 
with China alone set to triple its needs in the next decade. India's demands for energy 
are also increasing massively.

My point being, look at what is happening in the world, politically, environmentally and even emotionally, these are all factors than make the difference in success or failure in your investments. You don't have to restrict yourself to any one market sector of course but I find that focusing on one specific area (in my case, energy) makes it easier to stay well informed about the direction the market is taking.

You have the internet at your fingertips, research areas that interest you thoroughly, 
not just the companies that appeal to you but the world in which they function.

I have of course only mentioned a couple of market sectors but the same rationale 
would apply if it was Pharmaceuticals, Agriculture, Mining or Manufacturing.

• There is no such thing as too much research
• Watch the news, seemingly irrelevent events affect markets
• Get interested in the market you are investing in
• Spread your risk globally
• Monitor your investments, markets change quickly

Next time:  Looking at the fundamentals

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.