Now, let's start talking about some skills necessarily to be successful in equity investment.
What are factors you need to consider when investing stocks? Hmm, so many of them. But on my lists, four things must be there definately.
1. Industry rotation
2. Market timing
3. Issue selection
4. Asset allocation
There are two ways people usually used to pick up stocks: bottom-up and top-down. For bottom-up, what you care about are always what happened/ will happen to an individual company. I should say, this is an advanced skill which requires you have a very detialed and thorough understanding of the company you follow. However, no many investors had that skill and the time to acquire those information to leverage on, moreover, even verteran stock analysts or the management team of the company itself can be wrong on the judgement of the company's future development and performance. Thus, I would not suggest an individual investor to use bottom-up strategy in most of the occasions as you will be easily scratched by "thorn of the rose".
Therefore, Industry rotation is very important for individual investors to create value in their stock picking. Choosing the right industry, and you won't be too bad on your investment performance. Now here comes the second question, which is the right industry?
What is the right industry to invest at right time? 这应该是投资美国股市所需要了解的最大的一个问题。美国股票的涨跌受经济基本面的影响极大，而由于美国的经济自由度极高，因此各项经济数据往往能够很好的反映未来某行业的前景，而华尔街也养成了根据各项公布来操作各行业股票的习惯，因此如果你能够在行业景气度上进行提前准确预测，你的股票投资就已近成功了一半。
What is the right industry to invest at right time? 这应该是投资美国股市所需要了解的最大的一个问题。美国股票的涨跌受经济基本面的影响极大，而由于美国的经济自由度极高，因此各项经济数据往往能够很好的反映未来某行业的前景，而华尔街也养成了根据各项公布来操作各行业股票的习惯，因此如果你能够在行业景气度上进行提前准确预测，你的股票投资就已近成功了一半。
对行业景气度影响对大的因素就是经济周期（economic cycle），经济周期的不同阶段将影响到资金流和物流的流向和供给量，因此对不同行业造成不同的影响。具体到对各行业股票的影响，我们可以看下图所示。
Fidelity的网站上也给出了对各行业的具体解释，摘录如下：
1. Consumer Non-Cyclicals
Stocks in consumer non-cyclicals (food) and consumer growth industries (cosmetics, tobacco, beverages) tend to experience fairly steady demand and are less sensitive to changes in the business cycle. These stocks typically attract investors when the economic cycle or bull market has matured, or is in the early stages of contraction.
Stocks in consumer non-cyclicals (food) and consumer growth industries (cosmetics, tobacco, beverages) tend to experience fairly steady demand and are less sensitive to changes in the business cycle. These stocks typically attract investors when the economic cycle or bull market has matured, or is in the early stages of contraction.
2. Consumer Cyclicals (durable & non-durable)
Stocks in this category include durables and non-durables that are sensitive to interest rates as well as the business cycle. Investors typically seek them out when the economy is in the late stages of contraction.
Stocks in this category include durables and non-durables that are sensitive to interest rates as well as the business cycle. Investors typically seek them out when the economy is in the late stages of contraction.
3. Healthcare
In general, stocks in this sector move similarly to consumer non-cyclicals. This sector is considered defensive, meaning companies in this sector are generally unaffected by economic fluctuations. The healthcare industry consists of pharmaceutical firms, HMOs, biotechnology firms and medical equipment suppliers. Pharmaceutical companies are affected by competitive market shares, the pace of FDA approvals, patent lives, and the strength of the R&D pipelines. Many biotechnology firms are still in the development stage with their fortunes largely determined by investor perceptions of the relative merits of their R&D pipelines. With future new financing likely to be more difficult to obtain than in the past, strategic alliances between major drug companies and biotech firms are expected to increase.
In general, stocks in this sector move similarly to consumer non-cyclicals. This sector is considered defensive, meaning companies in this sector are generally unaffected by economic fluctuations. The healthcare industry consists of pharmaceutical firms, HMOs, biotechnology firms and medical equipment suppliers. Pharmaceutical companies are affected by competitive market shares, the pace of FDA approvals, patent lives, and the strength of the R&D pipelines. Many biotechnology firms are still in the development stage with their fortunes largely determined by investor perceptions of the relative merits of their R&D pipelines. With future new financing likely to be more difficult to obtain than in the past, strategic alliances between major drug companies and biotech firms are expected to increase.
4. Financials
Stocks in housing-related industries tend to respond well to falling interest rates and are often targeted by investors in the mid to late stages of an economic contraction. Non-mortgage-dependent banks are generally driven by commercial and consumer loan growth, and tend to be favored by investors during the middle of the cycle.
Stocks in housing-related industries tend to respond well to falling interest rates and are often targeted by investors in the mid to late stages of an economic contraction. Non-mortgage-dependent banks are generally driven by commercial and consumer loan growth, and tend to be favored by investors during the middle of the cycle.
5. Technology
Technology stocks can be cyclical to the degree that they depend on capital spending and business or consumer demand. However, they may also have long-term growth potential as technological products find broader applications and as new technologies are developed. Technology stocks are usually popular during early to mid stages of an economic expansion.
Technology stocks can be cyclical to the degree that they depend on capital spending and business or consumer demand. However, they may also have long-term growth potential as technological products find broader applications and as new technologies are developed. Technology stocks are usually popular during early to mid stages of an economic expansion.
6. Basic Industry
Profits of basic industries are driven by high utilization of capacity and strong market demand for products. Therefore, their stocks tend to be popular with investors late in an economic expansion. For basic material companies, the global economic picture and supply/demand equation also affect stock price movements.
Profits of basic industries are driven by high utilization of capacity and strong market demand for products. Therefore, their stocks tend to be popular with investors late in an economic expansion. For basic material companies, the global economic picture and supply/demand equation also affect stock price movements.
7. Capital Goods
Capital spending tends to increase midway through the business cycle, as the economy is heating up and higher demand for products leads companies to expand their production capacity. Demand in global export markets is key for agricultural equipment, industrial machinery, and machine tools.
Capital spending tends to increase midway through the business cycle, as the economy is heating up and higher demand for products leads companies to expand their production capacity. Demand in global export markets is key for agricultural equipment, industrial machinery, and machine tools.
8. Transportation
Railroads and other surface carriers tend to react early to a pickup in the economy. Airlines are subject to cyclical fuel costs, usage versus capacity, and competitive pressures on airfares.
Railroads and other surface carriers tend to react early to a pickup in the economy. Airlines are subject to cyclical fuel costs, usage versus capacity, and competitive pressures on airfares.
9. Energy
This category includes large integrated international companies, domestic exploration companies, and energy services companies. Each industry has its own dynamics, but ultimately all are driven by the supply and demand picture for energy worldwide. Political events have historically had a major impact on these industries. Stocks tend to be popular with investors late in the business cycle.
This category includes large integrated international companies, domestic exploration companies, and energy services companies. Each industry has its own dynamics, but ultimately all are driven by the supply and demand picture for energy worldwide. Political events have historically had a major impact on these industries. Stocks tend to be popular with investors late in the business cycle.
10. Utilities
Electric companies have historically been very sensitive to interest rates because of the large debt financing costs they must incur in order to build their infrastructures. These stocks tend to perform well in an environment of declining interest rates. Telephone companies may offer attractive long-term growth opportunities, as they diversify and compete in recently deregulated telecommunications markets.
Electric companies have historically been very sensitive to interest rates because of the large debt financing costs they must incur in order to build their infrastructures. These stocks tend to perform well in an environment of declining interest rates. Telephone companies may offer attractive long-term growth opportunities, as they diversify and compete in recently deregulated telecommunications markets.
11. Precious Metals
Precious metals and the stocks of companies that mine and process them can be affected by industrial and consumer demand, but the largest factor contributing to volatility in this category is generally inflationary pressure. Investors often flock to this category late in the expansion cycle.
Precious metals and the stocks of companies that mine and process them can be affected by industrial and consumer demand, but the largest factor contributing to volatility in this category is generally inflationary pressure. Investors often flock to this category late in the expansion cycle.
