The stock market can be categorized into different sectors, which are industries that have similarities. According to the Motley Fool, differentiating these various sectors can help physician investors better evaluate certain stocks when compared with their sector siblings. For example, when you are trying to determine the value of Pfizer’s stock, you wouldn’t compare it to Exxon Mobile, but you could compare it to Astra Zeneca. Two pharmaceutical companies have far more in common than an energy company.
The most commonly used classification of the U.S. Stock Market sectors is based on Global Industry Classification Standards (GICS). It includes the following 11 categories:
- Energy (eg, Exxon Mobile, ConocoPhillps)
- Materials (eg, Celanese Corp, DuPont de Nemours)
- Industrials (eg, General Electric, Honeywell)
- Utilities (eg, Eversource Energy, American Water Works Company, Inc.)
- Healthcare (eg, Sage Therapeutics, Inc., Regeneron Pharmaceuticals Inc.)
- Financials (eg, American Express, Co., White Mountains Insurance Group Ltd.)
- Consumer Discretionary (eg, Walt Disney, NIKE)
- Consumer Staples (eg, Coca Cola, Procter & Gamble)
- Information Technology (eg, Qualcomm, Inc., HubSpot)
- Communication Services (eg, John Wiley & Sons, Facebook)
- Real Estate (eg, CBRE Group, Inc., Simon Property Group, inc)
In many ways, this list is fairly generalized. Physician investors can delve even more specifically into sector subsets, such as pharmaceutical companies or airlines. In fact, your specialized knowledge as a physician can help you make truly informed stock purchases in health-related stocks, such as health equipment and even managed care.
Aside from the application of specialized knowledge, some investors assert that knowing when to invest in certain sectors can help you outperform the market. According to U.S. News and World Report, certain sectors will perform better than the overall market when factors like the rising and falling of interest rates are applied. When interest rates fall, it has been observed that apparel and the auto industry increase in value.
Applying time-tested observations can be helpful in navigating sector stock investing; however, there is never a guarantee of performance. You can expect an auto stock is going to perform well, but then a huge recall will set the company back. Do as much research as you can, but in the end, a prudent diversified approach to the market is what financial advisors often encourage. Use sectors as a tool for comparison and diversification and you will be on your way to a solid investment plan.