How Stocks Are Classified Into Specific Sectors by collegestock

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									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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