The Prudent Investor


Choosing The Sector For The Second Company To Be Purchased
March 13, 2007, 7:22 am
Filed under: Consumer Goods

Now it’s time to start thinking about the next purchase. SJW Corp. falls in the Utilities sector, so here is a list of the other sectors:

  • Basic Materials
  • Conglomerates
  • Consumer Goods
  • Financial
  • Healthcare
  • Industrial Goods
  • Services
  • Technology

I believe that a company in the Consumer Goods sector will be the second company to be added to the portfolio.

Alas, note the number of industries in this sector is as follows:

  • Appliances
  • Auto Manufacturers
  • Auto Parts
  • Beverages – Brewers
  • Beverages – Soft Drinks
  • Beverages – Wineries & Distillers
  • Business Equipment
  • Cigarettes
  • Cleaning Products
  • Confectioners
  • Dairy Products
  • Electronic Equipment
  • Farm Products
  • Food
  • Home Furnishings & Fixtures
  • Housewares & Accessories
  • Meat Products
  • Office Supplies
  • Packaging & Containers
  • Paper & Paper Products
  • Personal Products
  • Photographic Equipment & Supplies
  • Processed & Packaged Goods
  • Recreational Goods, Other
  • Recreational Vehicles
  • Rubber & Plastics
  • Sporting Goods
  • Textile – Apparel Clothing
  • Textile – Apparel Footwear & Accessories
  • Tobacco Products, Other
  • Toys & Games
  • Trucks & Other Vehicles

How am I going to select from such a wide grouping? Well, since I am looking to create a conservative portfolio that should survive the ups and downs of the market as time passes, Consumer Goods is an excellent sector for selecting a company that will survive, regardless of the direction of the economy. Whereas some industries will suffer with an economic decline, others will not, and that will be my focus.

For instance, I will not be looking to purchase a company in the Photographic Equipment & Supplies industry because if the economy falls into a tailspin then this industry will suffer. In such a situation, people will continue to buy food, but will put off purchasing a new camera.

So which industries match this idea? Opinions may vary, but here is my list:

  • Appliances
  • Auto Parts
  • Beverages – Soft Drinks
  • Business Equipment
  • Cleaning Products
  • Dairy Products
  • Farm Products
  • Food
  • Meat Products
  • Office Supplies
  • Packaging & Containers
  • Paper & Paper Products
  • Processed & Packaged Goods
  • Rubber & Plastics

You will notice that I have excluded alchohol and tobacco from my list, despite the fact that they are excellent survivors of economic downturns. Personally, I have always been wary of litigation against these industries, especially tobacco, and am not willing to accept this additional risk. Your mileage may vary.

I removed Textiles from the list because although we all need to replace worn clothing, this industry includes many of the high-end companies (Eddis Bauer, Liz Claiborne, Perry Ellis, etc.).

I removed auto manufacturers but not auto parts – the latter might actually do better in a negative economic environment if people are opting to fix their cars, as opposed to buy new.

Next post I will further narrow the industries in an attempt to make a selection. I try to get these posts out on Tuesday and Thursday, and since I will be in Syracuse, NY for a film festival towards the end of the week, if you do not see a post on Thursday then it will be because I was not able to establish an Internet connection.  Alas, I will not have an Internet connection, so the next post will come on Tuesday.

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2 Comments so far
Leave a comment

How about considering utilities (electric or gas) since most everyone uses utilities.

Comment by Vulstock

Utilities was the first thing on my list, and I decided to begin with water. I want to put together a diversified portfolio, so when I sell SJW I will look for another utility to replace it, and will consider electric and gas at that time. Thanks for the comment.

Comment by glsmyth




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