The Sectors

Analyzing where to go next.

In your stock portfolio you should have at least 5 different stocks in 5 different sectors.  In Consumer Staples you have purchased a food stock, and in Utilities we have an electrical utility.  So next we need to select three of the following sectors; Telecommunication Services, Materials, Technology, Industrials, Health Care, Financials, Energy and Consumer Discretionary.  If you get one stock in every sector your risk goes down even more.  You have the most risk in your portfolio owning one stock, as you purchase more stocks in different sectors the graph line goes from the upper left to the lower right until it flattens out into a horizontal line running parallel to and just above zero risk like.  You will in effect become your own mutual fund.

Mark Twain said "A gold mine is a hole in the ground with a liar on top."  So I am going to change that around a bit.  A Technology Company is a company with a liar at the top.  Tech companies measure eyeballs, clicks, clouds, users and sales growth.  Tech companies do not like measuring profitability and if profitable make pennies a share.  Tech hate dividends and love buybacks, they love to reinvest the profits.  Yet buybacks are at the very best stock purchased at the top of the market to support the stock price for management so they can get their bonus.  The technology itself is mostly hard for you to understand, yet you must understand the technology inside and out to know if your company is still in a leadership position.  Stay away.  If you must buy one buy one that has a dividend with a health yield.

The remaining sectors of Telecommunication Services, Materials, Industrials, Health Care, Energy and Consumer Discretionary as the sectors for our next recommendation.  I am going to add or create two new sectors.  Commodities and Agriculture.  In the Commodities sector I am adding are the owners of the commodity; Alcoa Inc. (AA) aluminum, Cliffs Natural Resources Inc. (CLF), etc.  In the Agriculture you have Deere & Co (DE), Potash Corporation of Saskatchewan Inc. (POT), etc.  Please make a note that it is everything commodity and everything agriculture the everything raw materials.  Safeway is not an agriculture sector it is every stock that controls, mines or grows that commodity, and oil and natural gas are not in the commodity.  For my purposes Energy consists only of oil and natural gas, coal and uranium miners are in the commodity sector. 

When you first purchase your new stock for the first time you should sell an upside covered call to lower your cost and make a little additional return on your initial investment.  After it expires you will need to analyze if you want to sell another or just hold the stock.