The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Kicking Back . . .

03/24/2011

Sometimes, things come into better focus when you stop looking at them. I’m sitting on a sunny balcony in Myrtle Beach, reading “Super Sectors” by John Nyaradi.

Sector rotation is a method of investment management whereby the investor buys cyclical stocks as the economy grows and defensive stocks as the economy declines. An example of a cyclical stock would be technology, and a defensive example would be consumer staples, like grocery stores.

Of course, the problem is that you have to be certain the economy is growing or declining. There is always a great deal of disagreement as to whether the economy is getting ready to grow or decline. Just watch CNBC!

Nyaradi’s thesis is that sector rotation is important but sectors should be emphasized that have long run potential regardless of the business cycle. The ones he identifies are (1) energy, (2) health care, (3) technology, (4) financials, and (5) the rise of Asia.

Technically, the rise of Asia is not a sector of the economy, but it nonetheless is a long term investment plan I believe. I also agree with energy, health care, and technology. I disagree with financials, as that sector is undergoing massive change due to last year’s financial re-regulation, plus that sector is most vulnerable to another collapse in the derivatives market.

Thank God for books, so we can get information and thoughts without CNBC!

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