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What Is Shares Classification ?

Understand Shares To Help You Make Money

14th  Sept 2012


A share is the smallest unit of ownership in a company.Owning a share or a stock of a company means you are a part owner of the company.

One of the fundamental that an investor need to know before he starts to trade i.e buy and sell stocks, is to assess how good the stock is. A common reference is to assess where it stand with respect to other similar stocks in the same classification or grouping.

Stock Classification

Investors normally classify stocks by type of business and group them under different sectors. This enable them to put the various companies in similar industries together for comparison purposes.

The most common classification structures the market into 11 different sectors as follows :

 

What Is Shares Classification?

 

DEFENSIVE STOCKS OFFER PROTECTION

The first two sectors , i.e consumer staple and ultilities do not suffer as much in a market downturn because people do not stop eating or using energy. As such, investors consider these two sectors “defensive”. Another sector worth considering is  health care. Argument along the same line is people do not stop seeking health care when they fall sick. These sectors  offer protection in a falling market and provide a balance to portfolios.

The remaining eight sectors are termed “cyclical.”  Cyclical stocks are more sensitive to fluctuation when they react to a variety of market conditions. This is where speculative investors take their opportunities to rake in money too. And when the market starts to fall, investors in these sectors have to dig in for a hard landing too.

SHORT TERM GAIN WITH CYCLICAL STOCKS

Long term investors use these sectorial information to assess the quality of the stocks and identify potential winners or loser in the market. One of the way to use sector information is to compare how your stocks or stocks you intend to buy, are doing relative to other companies in the same sector.

Take for example, if all the other stocks in the group are up 10% and your stock is down 5%, you need to find out why. Likewise, if the numbers are reversed, you need to know too why your stock is doing so much better than others in the same sector. Good performance should be supported by genuine fundamentals, otherwise you may be sitting on a time bomb about to erupt the next moment !

Many school of stock trading focus on technical analysis of market trend and outlook , market fundamentals and performances of companies, its current and future potential. These are professional approach which works.

However, there is another success formula that has proven time and again its ability to turn loser into winner . That is holding power. As the saying goes, when a man had fallen, he can fall no further. Likewise, after every stock market crash, the next it can go is upward.

Holding power is of essence in stock trading and is one of the factors that determine how successful you can be in your endeavor to strike it rich in stock trading.

 

 

Related Articles :

What Is Shares ?

What Is Share Market?

Stock Investment For Beginners

Make Money From Stock

 

 

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