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.
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
The most common classification structures the market into 11 different
sectors as follows :
DEFENSIVE STOCKS OFFER
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
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
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.
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