Sector Movement: If Only You Knew When

Previously i had written a post about Which sector are you in ? Before beginning your journey with stocks it is always good to know which sectors to invest in and why ? As we all know a sector which was hot in 2000, might not be hot anymore in 2007 and vice-versa.

Lets have a look at some charts from different time frames to see how the timing of buying certain sectors would have affected your portfolio.

Year 2000 (Boom Time) – Present
If you had bought stocks of companies in the Telecom or Tech sector in 2000 and not sold it, you would still be in deep waters. As you can see from the chart, the returns are -49% and -63% respectively. However if you had kept yourself away from those sectors and invested in Energy, Materials, Consumer Staples or even Utilities for that matter you would have done very well. No one needs reasoning why the Tech sector was down in 2000.

Year 2003 (before Iraq war) – Present
If you had bought stocks of companies in the Telecom or Tech sector in 2003 and not sold it, you would have done much better with returns of +74% and +63% respectively. However they were still not the best sectors. Energy, Utilities and Materials all had more than 100% returns.

July 2006 (near market lows) – Present
If you had bought stocks of companies in the Telecom or Tech sector in mid 2006 and not sold it, you are still smiling !! As a turnaround finally the Telecom and Tech sector outperformed Energy, Utilities and Materials. Strong earnings, sound business ideas, job growth has all lead to the success of the Telecom and Tech sector where as oil prices and swing of the dollar value had lead to lesser gains for Energy and Materials sector.

Conclusion: Always stick to couple of good sectors. Know which sector is good and which one is not. Try to understand the fundamental reason behind it. This will be the key to your success in the stock market.