Are you investing in the right industry?
Are you investing in the right industry?
?? By Joshua Tay??Does the term book-to-bill ratio sound familiar to you? Do you know the demand and supply numbers of private condominiums in Singapore for the next year ? If you do, youmust have already performed some sort of industry analysis on the electronics and property industries (or sectors as commonly referred to in stockmarket terms).??Most investment processes include some sort of industry analysis. This is important because many studies have shown that over a period of time, some industries have per-formed better than others. For example, between 1987 and 1996, banking stocks in Singapore have generated better returns than other industries such as shiprepair. Industry analyses will uncover these performance differences and helpidentify both unprofitable and profitable opportunities (situations).??It is also important to note that past performance alone will not help predict future performance. The factors or conditions that helped an industry to prosper in the past will change over time. Identifying and studying these factors will provide some clues to the entry and exit pointsof the investments. Going back to our earlier example, economic growth is an important criterion for banks' earnings. Between 1987 and 1996, Singapore enjoyed an uninterrrupted average GDP growth of 8.9%. This allowed the banks' earnings to grow at a compound rate of 11.3% when thebroader market generated only 8.5% growth. With GDP growth decelerating because of the Asian crisis, can we maintain the same sanguine outlook for the banks???Having determined that industry analyses are important forsuccessful investing, the next step is to find out how we can go about doing one. There is no generic framework that is applicable to all industries, but there are commonalitieswhich we can identify. In a free market economy, demand and supply are key determinants of price, and price is always animportant contributor to any profit-driven organisation. Hence, a successful indstry ana-lysis will have to identify the underlying fac-tors driving demand and supply.??Factors that drive demand vary across industries, and are too numerous to list. However, it is important to note that demand can be categorised as "seasonal", "cyclical" or "secular". As the word suggests, seasonal fac-tors recur year after year. Cyclical factors, on the other hand, followvery closely to the economic cycles of the market. Secular factors are more long term in nature. Seasonality or economic cycles will have minimal impact on secular trends.??Take an airline as an illustration. Most Singaporeans taketheir vacation in December. That is why airline seats are difficult to secure during that time. This is the seaso【Are you investing in the right industry?】相关文章：
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