If you want to beat the stock market without losing money in the next crash, I have got a strategy you will love which will boost your returns. I am telling you about Secular Vs Cyclical Sectors.
A lot of you have often heard about people talking and discussing Secular Stocks and Cyclical Stocks. But you don’t know what does it means as the understanding of the meaning can lead to powerful investing. Not only will this help you grow your portfolio during a bull market but it will also help you protect your money in a bear market.
First, let’s start by defining what Secular Stocks are! Secular Stocks are companies that are not as sensitive to economic cycles. When the economy is doing very well, Secular Stocks are likely to be in line with the market. But when the economy is struggling, Secular Stocks will generally outperform the market or will not fall more than the index. Healthcare utilities, food and beverage producers or consumption companies are examples of Secular companies. There is a logic behind this even when the economy is struggling you will buy milk, visit the doctor, and pay for your gas and electric. And when the economy improves, you will still continue doing the above. The result is the profit of secular companies which will end up being much more consistent. Thus such companies are consistent dividend payers to their shareholders.
But, Cyclical Stocks are Stocks that are sensitive to economic cycles. When the economy is doing well Cyclical Stocks outperforms the market. But when the economy is doing poorly Cyclical Stocks performs worst in the market. Examples of cyclical companies would be cement, sugar and metal companies. Once again there is a logic behind this. If the economy is booming you’re likely to buy houses that need cement. But if the economy is doing poorly people generally hold off on such large purchases to save for the future. Profits of cyclical companies undergo variations as they are affected by economic cycles.
At the end of the day, Secular Stocks tend to be more consistent performers and have less volatility than the market. They have a place in most investment portfolios because Cyclical Stocks are more volatile than the market.
The good thing is money can be made by investing in both Secular Stocks and Cyclical Stocks. But it requires understanding, awareness and of course good timing of where the market will be heading. As per macro events such as interest rates, inflation, unemployment, and economic growth. These macro events are very important to consider as they will decide the course of the sector in the coming months.
You should invest more on the secular side. But if there is an opportunity for getting into Cyclical Stocks then make an informed decision as it entails higher risk. For example, if the economy has been in a recession or slowdown for a while and is starting to pull out well, a lot of those Cyclical Stock will pick up. For this, you should be quick to understand when the tide is changing. If you think the economy is bottomed out.
So, that’s sort of the way I look at Secular Stocks versus Cyclical Stocks. My preference is to buy and invest in Secular Stocks as they are more stable. StockBasket is a product that has only secular stocks. It is a platform to invest in baskets of expert-selected stocks curated by considering 25 Intelligent Stock Rating Parameters. Each StockBasket takes into consideration sectoral exposure, risk diversification, single stock exposure. Thus it tries to cut the risk at the same time giving exposure to high return companies to an investor. But you can look for opportunities to find those Cyclical Stocks. As long as there is an understanding of where the economy is and where it might be going.
I guess by now you know what Secular and Cyclical Stocks actually mean and their importance. But before you start investing, you should be aware of your risk-taking capacity. For that, you can visit my previous article on How Hungry are you for the Risks?
Thank You and Happy Investing!