Mon 28 Aug 2006
As you both know from the last meeting, I’m launching a quest to better understand sectors. Knowledge of sectors and which sectors are hot or cold is vital to individual stock picking, since analyzing the sector performance and ranking vs. other sectors should be one of the first criteria any trader or short-term (less than 1 yr) investor employs to determine whether a stock is a buy or sell. The strength or weakness of the sector is useful and can be a primary component of buy and sell decisions for individual stocks.
The absolute best sector analysis tool can be found here: BarChart.com. Note how you can change the views on the left to explore how sectors have performed over various time frames. Clicking on any sector will list all the stocks contained within the sector (nice!). Not sure which sector the stock you’re researching is in? Just perform a little search using the “Sector Finder” in the upper left corner and the tool will show you which sector the stock is in.
With this site, you now can perform sector analysis in a few minutes and with just a few clicks. Add this to you stock selection checklist! Also, be sure to check back in on the sector periodically since you might find sell indicators on the site as well.
In the spirit of open-ended posts, here’s a question: how else could you use the sector performance information as buy, sell or hold information?
August 28th, 2006 at 2:17 pm
Barchart is great. I’ve been a long, long time member of their advanced commodities section. I’ve never been to the sector area but I like it. I’ll have to play with it more and get back to you on your question.
August 28th, 2006 at 3:57 pm
Please note that the “Weighted Alpha” mentioned on Barchart is not the same alpha dicussed in my other post. I think this is misleading. Looking up the definition on the site it reads “measure of how much a stock has changed in the one-year period…weight[ed] to recent activity.” This isn’t alpha. It’s simply weighted return. What would actually be useful is real alpha. I’m working now on putting together some stats (including real alpha and relative strength) on the Select Sector SPDRs that might get us started on a good approach to sector portfolios.
August 31st, 2006 at 1:35 am
My understanding of the term ‘alpha’ in the investment community at large is that it is the performance gain (or loss) from a manager’s presence. When people talk about “seeking alpha” they’re talking about finding good managers for their investments.
As such, it might make sense to apply Quicksilver’s formula to an individual security, but only if you want to replace an entire asset class (or benchmark) with that security. E.g., replacing all domestic equity with MSFT. But then again, is that MSFT’s alpha, or is it your alpha for choosing MSFT over, say, INTC?