Investor Fetish: Investing In Specific Industries
We all have certain industries we prefer to the other; however, certain investors have sworn an oath to specific industries and are willing to go down with the ship to prove it works.
One thing we love so much as Nigerians, is ‘title’. As a result of our need for respect, we sometimes dust our resume whenever we introduce ourselves. As investors, this cannot be truer.
“I’m a Real Estate investor.” “I’m an Agricultural investor.” “I’m an FMCG investor.”
You would agree that all of these sound better than just saying ‘I’m an investor.” The reasons for investing in specific industries proudly, are not far-fetched.
The first common reason people do this is because they have probably made money or had friends and family members who made money from a particular industry, so it automatically becomes the winning ticket for your funds every time.
The other reason is sentiment – and we are very sentimental people. We end up ascribing so much value/weight to a specific sector and while that is not always bad, it has its dangers.
There is no gainsaying the fact that businesses within specific industries tend to behave alike.
Some sectors are generally less volatile. They are known to move at sustainable levels for a long period of time and very rarely fluctuate. But just like all safety umbrellas, they also tend to offer lower investments.
Industries like this would generally appeal to investors who are focused on capital preservation and who want to have a measure of predictability on their investments.
If you’re a ‘money-fast’ investor on the other hand with a higher risk threshold, chances are that you will go for the riskier investment vehicles and sectors, choosing exciting growth prospects over the risk of increased volatility and possible investment losses.
Investing in a specific sector exposes you to sector risk. Sector risk is the risk that stocks of a certain industry will fall in price at the same time because of an occurrence that affects the entire industry.
But are there advantages of this fetish? Maybe.
You do get to enjoy the convenience of simplicity. It’s just how some of the biggest billionaires all over the world choose to wear just one colour of T-shirt. It saves them the stress of deciding what to wear and they can focus on more important things.
In the same way, investing in just one industry is as easy as going to its specific page when analysing NSE indices on the Yochaa App. Eazy breezy. However, the reason billionaires free up their time from shirt picking is because they want to have more time to pick investments better. *Investment, not T-shirt*.
As a new investor, the convenience gives you a false sense of security and it is especially worse when that industry is experiencing a boom.
That brings us to the other advantage that is not exactly an advantage. When you invest specifically in a sector and it is doing well, you cash out – big. Of course, when you look at investments not in terms of buying stocks but in terms of owning a business, it is normal for you to focus on one business type and the specific industry you belong to.
However, it also explains why a shift in economic conditions has thrown businesses off balance.
When investing, it is important to understand the unique behaviour of different investment vehicles and different sectors.
Real estate can be highly capital intensive but would provide longer term capital gains. Manufacturing or consumer goods industries would also generally offer you solvency as they are easily converted to cash.
However, investment in stock gives you a full basket of options. It allows you fish from exotic waters, picking all the kinds of creatures that would come together to meet your expectations.
Investing in stock gives you an avenue to spread out sector risk as much as possible and using the Yochaa app, deciding which stocks should be given your money can be as easy as picking a T-shirt on a good Friday morning.