INVESTING 101 - CATEGORIES OF STOCKS
Once you understand that there are many types of stocks including common and preferred stocks. There are many other ways investors classify them as well and I'll be bringing you through the commonly found ones so that you can decide how you'd want to start researching on building your own portfolio! 🙌
Commonly found Categories of Stocks
Company Size:
They refer to market capitalization (or Market-Cap), or the value of a company.
Companies are generally divided into three types by size (market value):
-Small-cap ($300 million and $2 billion).
-Mid-cap ($2 billion and $10 billion)
-Large-cap ($10 billion or more)
Large-cap stocks are generally considered to be safer and more conservative as investments, while mid-caps and small-caps have more capacity for future growth but are riskier.
Location:
Stocks are frequently grouped by geographic location.
You can diversify your investment portfolio by investing not only in companies in your home country but also in companies based internationally and in emerging markets, which are areas that investors are looking for high growth.
Industry/Sector:
Companies are also divided by industry, often called sector.
Stocks in the same industry — for example, the technology or energy sectors — may move together in response to market or economic events.
That’s why it’s important to diversify by investing in stocks across sectors! 🤞
Here are some common sectors that you might see in discussions!
Communications - telephone, internet, media, and entertainment companies.
Consumer Discretionary - retailers, automakers, hotel, and restaurant companies.
Consumer Staples -- food, beverage, tobacco, and household and personal products companies.
Financial -- banks, mortgage finance specialists, and insurance and brokerage companies.
Healthcare -- health insurers, drug and biotech companies, and medical device makers.
Real Estate -- real estate investment trusts and real estate management and development companies.
Technology -- hardware, software, semiconductor, communications equipment, and IT services companies.
Cyclical and NonCyclical
Cyclical stocks can include companies in industries like manufacturing, travel, and luxury goods because an economic downturn can take away customers' ability to make major purchases quickly.
When economies are strong, a rush of demand can make these companies rebound sharply.
Non-Cyclical stocks, also known as defensive stocks, won't have big swings in demand. For example, grocery store chains, because no matter how good or bad the economy is, people still have to eat. (Especially Sheng Shiong during this COVID-19 Pandemic)
Non-Cyclical stocks tend to perform better during market downturns,
while cyclical stocks often outperform during strong bull markets.
Growth and Value Stocks
Growth Stocks:
Companies that are either growing quickly or expected to grow quickly.
Investors are typically willing to pay more for these stocks because they’re expecting bigger returns.
Some considerations;
higher risk levels, but the potential returns can be extremely attractive.
Successful growth stocks have businesses that tap into strong and rising demand among customers
Value stocks:
Value Investors deem these stocks as on sale as they are underpriced and undervalued.
They assume that these stocks will increase in price because they’re either currently flying under the radar or suffering from a short-term event.
Typically more conservative investments.
They're often mature, well-known companies with reliable business models that have already grown into industry leaders
In a nutshell,
With so many categories of stocks, what matters most is that you believe in the company’s long-term growth potential and whether the stock complements the other investments you own.
But if the idea of assembling individual stocks into a diversified portfolio seems like too much work and you're afraid of making the wrong move, you might want to consider Index Funds, Mutual Funds/Unit Trusts where we can easily achieve a diversified portfolio too! 😍
You guys are awesome!❤
If you'd like to start investing and want to engage a trusted advisor, book a discovery call with me so we can find out your goals and what's the most appropriate solution!
Disclaimer: All investments have their own risks, please do your due diligence before making any decisions.