Implementing Rule #1 & 2.

As I become more interested in stock markets, I want to put my knowledge into practice. In the previous post, I talked about where to start investing, what you should have in mind. To read in more detail, please go to the previous post. in short, Rule #1 is about choosing the sector/industry, rule #2 is about the investing strategy.

I think i should have changed the order of the rules, cause i believe investing strategy comes first, Sector selection later.

For my future investments and analysis i will take value investing as a priority for various reasons. One of them is historical average return of value stocks outperforming growth stocks for many years. Second, value investing is less risky and can have higher return during bull markets as well. Currently, market is bullish and i think it gives an opportunity for value investors to make returns as market values stocks optimally. Another reason to go for value investing was due to the fact that i have been reading a lot previously about value investors like Warren Buffet, Ben Graham etc. their books as well. Furthermore, i have done quite some analysis when I was a masters student in Finance which gives required skills necessary to value stocks better.

The next decision for me was to choose a sector. I will be looking at Consumer Discretionary for now as my preferred choice.


So what i did was to eliminate sectors based on their performance, current fundamental market environment and their fit for value investing for the period I am in.

The performance was based on the data i collected on 19th April 2016.

I got rid of Energy despite being my favorite and having some experience in the sector i decided not to follow it as right now, oil prices are quite volatile and hard to predict. Oil trades around 45$ which rose back from 27$. Energy companies are quite correlated with oil prices and furthermore, we see the shocks of the plummeted oil prices on companies’ investment decisions as many either filing for bankruptcy or reducing their Capex in projects. I would say the same for Materials which is closely linked to Energy.

Financials have been quite poor performers in the past couple of years and it seems tight regulations and scrutiny, court orders facing some large banks do not give me another choice but to abandon the sector for now. Health Care is interesting and has been in my attention for a while as potential growth in the industry. However, I believe the sector is good for growth stocks and my zero knowledge in health care gives me no edge to search stocks in that sector. Therefore I am out. Utilities have performed quite well in the past few years. But the sector is quite governmental regulated , it makes harder to search for value stocks in that sector. Above the rest , I was left with two sectors which seemed appealing for me: Consumer discretionary and Telecommunication Services.

Therefore to make the final decision between those two i had to look at some other data available as shown in the above table. I collected ratios for the sector from Bloomberg for 3 month period. Based on my findings, I concluded COND is more favorable for value investing than Telecommunication Services.

Choosing a sector as a road map is not a bad idea but it is not the only way for value investing. I might miss better value stocks in the other sectors for sure however, looking at the road from higher ground gives me a better picture of what is going on and whether industry is a good one for the current period based on fundamental issues which is seriously need to be taken into account.

Here, i could analyse the sector more deeply if necessary, however, I also believe that i can find value stocks in any industry at any time therefore, I will put more of my energy for the next steps which are about  analyzing sector, industries and value stocks- the core of investing.

I will be posting more in the future as i do my due diligence and will share with you my experience.


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