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How to Be a Sector Investor [Secure eReader]
eBook by Larry Hungerford & Steve Hungerford

eBook Category: Personal Finance/Business
eBook Description: Hot to be a Sector Investor is an invaluable guide for anyone embarking on the sometimes perilous but potentially highly profitable journey of investing in sectors of the stock market. With an absence of jargon, an abundance of straight talk, and a refreshing focus on risk, the authors plot a sensible course for individuals with the courage to expand their investment horizons by venturing beyond broadly diversified portfolios.

eBook Publisher: McGraw-Hill Companies, Published: 2002
Fictionwise Release Date: June 2002


Why would anyone pick up a book on sector investing? More specifically, why would you pick up a book on sector investing? Our guess is: profit! You want your investments to make more money. You are not satisfied with just getting to first base -- you want to swing hard for doubles, triples, and even home runs. Let's face it: you are a capitalist to the core, and perhaps a bit greedy. You have seen some of the eye-popping numbers that certain sector mutual funds have produced over the years. You want a piece of the action. Nothing wrong with that. Indeed, we admire your aggressiveness.

But lurking just beyond the recesses of your capitalist greed lies an even more destructive force. It is an emotion that makes you hesitate, that calls you to inaction, and that constantly reminds you of every investing horror story you've ever heard. That emotion: fear. Fear is, in our opinion, the more dangerous of the two emotions that plague most investors.

The desire for profit encourages us to invest in the stock market, rather than leave our savings tucked safely away in low-yielding investments. Capitalist greed compels us to take risk, to seek ownership, and to share in the profits of the great businesses of the world. Given enough time and proper diversification, investing in the more volatile arena of stocks is always the right thing to do. (It is short-term greed that usually causes the big problems.)

Fear, on the other hand, cripples the average investor and leads to inaction. Fear often causes large sums of money to languish in money markets or CDs. As a result, real returns, after taxes, barely keep up with inflation. Or fear may lead to far too much invested in corporate or government bonds. Either way, you lose the energizing power of double-digit annual compounding that stocks have produced decade after decade. (U.S. stocks have averaged 9.1% for 128 years since 1871 and 12.2% for the 50-plus years since World War II.)

So ask yourself: are you ready to face your fear, push past anxiety, and embrace the possibility of sector investing? Are you willing to risk a few strikeouts along the way as you swing for the fences? Conversely, are you interested in diversifying part of your portfolio into real estate, utilities, and natural resources -- sectors that often zig when the broad market zags? If so, we invite you to join us as we journey together down the path of intelligent, risk/reward sector investing.

In the following pages we hope to answer most of the questions that you, as a beginning or intermediate investor, want answered. We make no apologies to the advanced or professional investor; this book is not written for you. We opt for a fairly basic approach, assuming no prior knowledge of sector investing or complicated terminology.

Part One (Chapters 1 through 3) will help you get started. In Chapter 1 we explain what sector investing means, define key terms, and provide a framework for you to build a personal basic investing philosophy. Though many professionals don't include international investing as a specific sector, we explain why we do. Chapters 2 and 3 describe the pathways to investing in various sectors -- using mutual funds and/or buying individual stocks -- with emphasis on the practical steps of each method. Part Two (Chapters 4 through 10) provides you with a complete toolbox for sector investing. Here we devote a separate chapter to each of our chosen sectors, with an interview and advice from a successful mutual fund manager in that sector. Part Three (Chapters 11 and 12) is designed to help you put it all together. In Chapter 11 we offer model portfolios together with a step-by-step approach to getting started, complete with phone numbers and references. Chapter 12 concludes with a few cautions and warnings (fear is sometimes a good thing).

In this book, we feature the seven major sectors of the stock market as we see them. These sectors can be divided into two major groups. The first group consists of those sectors that generally move in concert with U.S. stocks. This group includes technology and communications, financial services, health care, and international investing. All four of these sectors are more likely to move in the same direction as the broad U.S. stock market, though certainly less so in the international arena. The second group of sectors is much like a band of wayward adolescents: they have to find their own direction. These sectors sometimes are up when the broader markets decline and often are down when other stocks move higher. They include utilities, real estate, and natural resources.

A different division of sectors or subsectors may seem more logical or appropriate to your particular investment objectives. We have chosen what we feel are the largest segments of the market and believe the principles outlined can be applied to other U.S. sectors and subsectors, as well as to segments of the international arena, such as emerging markets.

After reading the first three chapters, you may want to skip to the sectors that have the most appeal to you. Although we believe there are valuable investment tips in each sector chapter and from each expert interview, you may find reading selected chapters a more efficient use of your time. Whatever you do, we ask that you please read the last two chapters carefully. They contain our blueprint for sector investing and, perhaps more important, offer a warning against too much greed with a stark example of the pitfalls inherent in sector investing.

As you pick the sectors that appeal to you, we hope that our approach will help you secure higher returns or greater diversification to lower risk -- or both. Simply put: our overall goal in this book is to help you discover your sector investment comfort level -- balancing both fear and greed.

Larry Hungerford
Steve Hungerford

Copyright © 2000 by The McGraw-Hill Companies

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