As eager investors look for the next big moneyspinner it is sometimes easy to forget the most valuable commodity of all, experience. The ability to take stock of a situation, review the figures in a cold hard manner and then take the appropriate investment action (or non-action) is priceless. One way in which you can focus your attention and your expertise going forward is to specialise in a specific sector. This may be technology, telecoms, banks or some other area of the stock market. So, what are the benefits of specialising in a specific area?
Trends repeat themselves
If you specialise in a specific area you will notice the emergence of trends, share price reaction to certain news and perhaps the run-up in a share price before results are announced. Many of these occurrences will be repeated in other sectors so while you may be specialising in one sector, a company in another sector may catch your eye because of a movement in the share price that you have seen before. Sometimes investors with a short-term outlook can easily forget that trends repeat themselves on a regular basis and this type of knowledge is extremely valuable.
Improve your research skills
In the first instance any sector which you decide to research in detail has to have a specific attraction for you. You may be interested in technology shares, maybe you like the security of the banks or perhaps the biotech sector and its volatile nature catches your eye. The beauty is that the research skills which you develop by focusing on a specific sector can be used in different areas of the stock market. That is not to say that your focus will be taken away from your “specialist area” but if you see a company which catches your eye then you will know what to research, what to take notice of and what to avoid.
Specialise in your favourite stocks
While we’re talking about specific focus on a particular sector the reality is that subconsciously we all have our favourite type of business, stocks and even companies. For example many people discount the mining sector even though there are some very interesting trades which emerge here from time to time. Some people will ignore the banking sector which is seen as “drab and dreary” but as we have seen in the US of late it can suddenly come to life. In many ways if you sit back and review the situation, the areas in which you should consider specialising have already been decided subconsciously. Go with your head.
Short-term trading and long-term investment
We all have different ideas about trading the stock market, banking short-term profits or investing for the long-term. If you begin to look at the fundamentals of companies in great detail, and specific sectors, you will come across short-term trading opportunities and longer term investments. There is nothing wrong in taking a profit just like there is nothing wrong in investing longer term if the long-term fundamentals remain unchanged. It goes without saying that stocks and shares can be extremely volatile in the short term but if you remain focused on the longer term then the short term volatility should not really impact your strategy. However, like we said above, it is never wrong to take a profit!