ynot:" on Sectors "
sure; tankers and container-ships are analogous to packets... perhaps we could imagine conceptual roots beyond EE, in physics - quanta, for example.
Good example of a "storage tank" would prolly be EMC; SUNW and like are really in the "storage tank construction" biz; ie., EMC:SUNW rather than EMC+SUNW. We could argue that certain "DOT.COM" companies with content are in effect, storage tanks ?
anyhoo, what I do first is make a distinction between information = kapital carriers like telco/cable/wireless companies, and capital investment companies like CSCO, LU, NOK etc.; in other wordz...
XON is to SLB as kapital gain is to kapital investment; "XON : SLB"
for example:
XON is to SLB as INTC is to AMAT
and, further:
XON : SLB = INTC : AMAT = T : LU = CMB : MWD
so, let's expand T : LU ...
T + WCOM + SBC + DT + NTT... : CSCO + LU + NT + NOK + SFA...
I will make these observations, that I believe to be true, about any sector :
(1) all of a sector's components tend to (be correlated) move together, up or down; further, components with consistent F/A earnings don't "grow more", rather - they "decay less" (have less entropy) over time.
...F/A is much more useful when PEG = Projected Earnings Growth is viewed as one measure of Projected Investment Entropy; I think good stock pickers tend to do this (perhaps unconsciously) intuitively (^_^)
(2) when there exists growth evident (on the left-hand side of the ":") then there tends to be a greater or, "leveraged" growth evident on the kapital investment right-hand side of the ":" This effect appears to be similar to amplification via "feedback" (of kapital gains).
(3) large-cap or, visible components of any sector index tend to have less volatility, greater auto-correlation than smaller-cap components or, companies less visible because they are not "in" the published sector index = options vehicle.
fwiw, I use a ~60:40 allocation within sector investments; for example...
T + WCOM + SBC : CSCO + LU
XON + BPA + DD : SLB + HAL
GE + C + AIG : MWD + SCH
...increasing the weight of the right-hand side has an effect similar to increasing the leverage of the entire sector investment; increasing the weight of the left-hand side has an effect similar to reducing the volatility of the entire sector investment.
You can "beat" any sector index (in a growth scenario) by increasing your right-hand side investment weights.
You can "beat" any sector index (in a decay scenario) by increasing your left-hand side investment weights.
-Steve |
