We all want the best for our portfolio and it starts with good sector allocation. This episode is the first in a series that covers each of the 11 market sectors. You will be able to know your strengths and weaknesses. how to get the best out of them and of course Mike’s favorite picks.
Let’s start with the two consumers: cyclical and defensive.
You will learn
- How each sector plays a different role in your portfolio.
- Strengths and weaknesses of both sectors.
- How can an investor get the most out of the Consumer Cyclical and Consumer Defensive Sectors?.
- How to look at these sectors in a recession or what the risks are.
- Which stocks should you 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 made about the company if you want to learn more about it.
Do you know your industries?
I could probably write an entire book on sectors, but that would be an unnecessary mountain of knowledge for anyone to climb. Plus, you don’t need a book to understand how each sector works. What you need is a clear research policy that tells you what is important and how to make the best investment decisions. In this series we will cover the following points:
An investment sector will include many different companies. They are then all grouped into industries, as they have many characteristics in common. If you are overexposed to one sector (e.g. over 20% of your portfolio) but invested in different industries, you may still be well diversified. For example, you might have an aerospace and defense company, one for construction products, one for railways, and the fourth for tools and supplies. They are all part of the industrial sector, but the construction products have little to nothing to do with the defense industry.
We’ll highlight what investors like most about the industry. 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. Understanding these weaknesses will help you manage fluctuations and optimize the risk in your portfolio.
How to make the most of it
Now that you’ve combined strengths and weaknesses, we’ll show you how to position your portfolio to benefit each sector. For example, most industrials are cyclical. There are times when you can enter or increase your position in this sector for higher returns.
These are not buy recommendations and I don’t look at the current price before adding them as my “favorites”. It’s about giving you an idea of what we like. Then it’s up to you to determine which stock is best for your portfolio.
On the subject of matching items
More information on the two consumer sectors can be found below.
Consumer Cyclical: The All-You-Fit-In Sector And How To Make The Most Of It!
Consumer Defensive: Get the most out of those constant cash flows