Stock Market Review 2
Market Capitalization = Number of outstanding shares * current market price. For example, a company XYZ has 1M outstanding share at price 100$ each, so it’s market value is 100M$
One way to categorize stocks is Sector vs Industries. Industry groups a small set of identical companies, while sector groups companies with broader similarity.
For example, the energy sector contains all oil and gas exploration and production companies. This sector is further categorized using industry. An industry, within such sector, contains oil explorations companies only.
Companies within same sector are affected by the same external factors.
Secular vs Cyclical is another stock categorization method. Secular stocks belong to companies that people will always buy from. Customers buy drugs and food even if price increases. Customers need their products and services.
Cyclical stocks belong to companies that depend on healthy economy. Customers want their products and services. Yet, customers will avoid luxury goods and entertainment services if economy goes down. This concept resembles “price elasticity” where demand on most products is inversely affect by price while demand for some products like drugs is constant.
Healthy stock portfolio is a collection of stocks that belong to different sectors. So in case a sector is a hit by unexpected factor, other sectors cover such loss.