*VALUE INVESTING AND BEHAVIORAL FINANCE By PARAG PARIKH - SECTOR INVESTING*
*INTRODUCTION*
A host of companies is listed on the stock markets, and if one were to look for a good investment opportunity, one would definitely try to narrow the search by first identifying the industry or the sector that looks promising, and then identifying various companies in that particular industry or sector. Growth in a particular sector would signify that companies in that sector would also enjoy high growth and would attract investments from investors. Stock markets are all about
discontinuity and creative destruction. From time to time,
different sectors dominate investor
interest. No sector has a permanent appeal amongst investors. It is the inherent nature of investors to get enamored by the new, as it signifies growth opportunities, which in turn would lead to
abnormal returns. How do new sectors happen and catch the fancy of investors? It could happen with the change in fortunes of a particular sector, due to factors such as change in business environment, change in price of raw materials
as we saw in the recent commodities boom, change in government
policies, economic growth in an economy and shortages due to natural disasters.
Alternatively, it could be due to the advent of new technology, as we
saw with the internet, the birth of the technology sector, the
telecommunications sector and the hardware industry. This technological
revolution could also spell the death knell for certain industries like the ones we saw in the telecommunications industry. For example, optic cables replaced the wire cables industry, mobile or wireless telephones are replacing the old fixed-line telephones. The digital revolution has changed the music industry and the way we live our lives. Over time, such changes do happen, and the stock market is a place where such new ideas get funded. Investors are always looking at getting into a new sector, as they firmly believe that these future growth sectors
would make them immensely rich. Investors have a penchant for chasing
the new, and thus new sectors soon become the stock market favorites.
*KRISHNASWAMY PARAMESWARAN*
02.04.23
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