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This section of the website is of greatest interest to longer-term investors. We publish the Sector Review each month around the middle of the month.
The FRED Report believes that a sector based approach to investing will lead to long–term success. Research from William O’Neil & Company, publisher of Investors Business Daily, suggests that a stock’s price action is typically attributed to the following:
- (a) 20% to the stock itself
- (b) 31% to the overall market
- (c) 37% the Subgroup the stock is in
- (d) 9% the Group the stock is in
- (e) 3% the Sector the stock is in.
Also include in the Sector Review Report is table where we list three stocks per sector that we believe will outperform the particular sector ETF and three issues we believe will underperform the sector ETF.
Note, and this is IMPORTANT: this performance is relative to the ETF and not to the market Indexes.
Also note, and this is EXTREMELY IMPORTANT: the preceding means that (A) stocks in the strongest sectors that we believe will underperform the sector ETF may still outperform the market indexes, and (B) may also outperform the strongest stocks in the weakest sectors. In most instances a diversified portfolio will contain stocks from each sector, even those that we underweight. An aggressive portfolio might wish to avoid stocks in the sectors we underweight, but there are plusses and minuses to this approach. The most important minus is that if we are wrong on our sector weightings, significant upside performance can be missed.
The ideas from the Sector Review are investing, and NOT trading ideas. Since trading ideas often come from oversold conditions, it is likely that the best short-term trading ideas are actually stocks we DO NOT like as investors.
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