How Stocks Are Classified Into Specific Sectors If you want to get involved in the stock market one of the things you should understand is how various stocks are classified into specific sectors. This knowledge can help you choose the stocks you want to invest in, because you will know more of what to expect from each kind of stock. Broadly speaking there are two main sectors to consider. The first one is defensive. A good way to remember it is that it is better able to defend changes that occur in the stock market. But you should also remember that you will not see any major changes going on in this market. This is because they consist of utilities and other companies that deal in essential items that everyone needs. Because these needs are fairly consistent all the time you won’t ever make a huge profit out of them. They can however help you to protect yourself against picking stocks that suddenly experience a huge drop in value. All of the remaining stocks which don’t fall into this category are viewed as being cyclical. The reason for this is obvious. Even though the stocks in this category can vary markedly, they are all able to rise or fall depending on the market conditions and how well or badly that company is doing. This latter aspect applies to all stocks of course, but it is particularly notable with cyclical stocks. For example transportation figures in the cyclical stocks area. Indeed this is a specific sector of that kind of stock. Now obviously if good developments were made by a particular company that advanced the industry in some way, you might well see a significant increase in the value of that company’s stocks. Conversely though, the company could drop in value if something happened to make a certain form of transportation redundant in some way. This is why cyclical stocks vary from stocks classified as being defensive in nature. They are riskier in terms of your investment, but they also offer the chance of making significantly more money if you pick the right ones. The best idea when you are learning how stocks are classified into specific sectors is to choose a good mix of stocks to invest in. Select some defensive ones and balance them out with some cyclical ones, perhaps in areas such as energy and health care for example. This will lead to a balanced portfolio that will hopefully reap rewards in the long term. Next, check out The Dean's list of free penny stock picks that have made huge gains.
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