#sectorrotation
Unless you’ve got a crystal ball 🔮 or one of those almanacs 📘 from Back to the Future, most people cannot successfully time ⏲️ the market. If you attempt to time a market crash, you will likely guess wrong, panic sell as the market is dropping 📉, and buy back in when the market is already on its way back up 📈. Selling low and buying high--the perfect way to lose lots of money 💸.
In my humble opinion, a better approach is something known as “sector rotation”. Sector rotation is a strategy where you move OUT of sectors you think will underperform and INTO sectors you think will outperform based on which stage of the business/economic cycle we are in.
----------------------
⚡ What is sector rotation ⚡
Although it doesn’t always work out this way due to various factors, the economy GENERALLY tends to follow a cyclical pattern, consisting of 4 stages:
1️⃣ Early/Expansion - rapid growth, low interest rates
2️⃣ Mid/Peak - growth hits max rate
3️⃣ Late/Contraction - credit tightens, growth slows, employment falls, prices stagnate
4️⃣ Recession/Trough - credit dries up, economy hits lowest point
These economic fluctuations (expansion vs contraction) can influence the performance of different sectors. For example, during a recession, consumer staples, healthcare, and utilities continue to perform well because even when the economy is weak you’re still going to need groceries 🍇 (consumer staples), electricity ⚡ (utilities), and medications 💊 (healthcare). There’s a lot of other stuff included in each of those sectors, but you get the point.
If you can figure out which part of the business cycle we’re in, you may be able to identify which sectors are well positioned to perform well during current and future stages.
The attached image shows the estimated performance of each sector according to the stage of the business/economic cycle.
----------------------
⚠️ Caveats ⚠️
This approach is purely hypothetical, and there will always be factors unaccounted for. For example, deviations from the normal patterns could be caused by shortages of certain raw materials, effects from other global 🌎 markets, or long-term secular trends that span multiple business cycles.
Every business cycle is different and each stage varies in length (some stages lasting several years). So, the risk of miscalculation will always exist with this strategy.
----------------------
💡 How I use sector rotation in my portfolio 💡
Due to the miscalculation risks, I continue to diversify across all sectors (i.e. I never completely sell out of any sector). Then, I make minor increases ⬆️ or decreases ⬇️ to certain sectors using the sector rotation strategy. Using this method allows me to continue investing broadly in the market, while hopefully giving me just a slight edge. If I’m right, I’ll moderately outperform the market. If I’m wrong, I’ll only faintly underperform the market.
----------------------
💭 Final Thoughts 💭
Sector rotation is definitely a more active form of investing. So it’s likely NOT a good fit for anyone that wants to just “set it and forget it”. But, for anyone worrying about a market crash, or if you’re just the type that likes to “tinker” with your portfolio, sector rotation may be a fun tactic to try out.
But remember, I am NOT a financial advisor or professional investor. These are my opinions and what I do in my personal portfolio. Here to help you learn. Please don't sue me 🙏.
----------------------
❓Questions for the audience ❓
What do you think? Will you start using sector rotation in your portfolio?
----------------------
See the visual on instagram: https://www.instagram.com/p/CTzWjuDAMom/?utm_source=ig_web_copy_link
Check out @Xander882214 's post for examples of stocks and ETFs in different sectors: https://public.com/p/YIKeiXOY1cRSAhbc6gXFRZ75WJPtspEp
----------------------
Disclaimer: This is not investing or tax advice. Always do your own due diligence and consult with a professional for individualized advice.
----------------------
#investing101 #investingforbeginners #feedmybrain #investingbasics #newinvestors #stockmarketeducation

50
108

@ctsshah yeah tech really crushed it last year. Wondering if we’re due for a tech correction soon, though.

Not going to lie to the people… I am lazy. I try to buy and hold a diversion portfolio so I do not have to rotate. It may make your portfolio bleed during certain times but over the long run 🌱->🌳.
(I own more then the stocks here on Public, my portfolio on Public is semi-diversified but not as diverse as my whole portfolio is)

@brendanschema haha can't blame you. Sector rotation definitely isn't required to be successful in investing. I didn't even know about it until a couple years ago, and I did just fine.

@freestate Thank you! Yeah it's very important to be aware of all the economic fluctuations when actively trading/investing.

I think I’m mostly lazy style so almost everything I buy is something I’d hold long term.
But there are long term purchases i timed because of the sector momentum.
I think it’s easier for me to balance value and growth. So I have a lot there are benefiting from low interest rates and then staples and healthcare etc for if we enter a correction.

@sydward most of my portfolio is a long term hold. Sector rotation just gives me ideas of where to add money when I'm feeling fancy.

I generally don’t rotate OUT because I generally invest for the long term and as long as I’m gonna be up over a period of like a decade, I’m probably not selling it. The majority of my main investments are in index funds similar to $VOO and $VTI or target date lifecycle funds anyway… But when I’m picking up individual stocks though I do rotate IN by buying into what I think will be doing the best in…See more

I agree and generally you can pick a few individual stocks in a sector and play the trend. For example, swing and day trading $TLRY was super good for me during the last Marijuana bull run, till I mistimed one of my calls and lost some of my gains. At that point I had to make a choice to either play reversal or sit out and see what happens. As you mentioned we don’t have a crystal ball, so I decide…See more

Learning all the time. For example, I just learned how to save a post. Great stuff @financepillowtalk

@ThePirateKing that strategy is very logical, and I do the same. Majority are long-term holds and index funds, while keeping the economic cycle in mind for possible new purchases, as well as figuring out what to avoid buying.

@anhad what's your current strategy for the marijuana industry?

@Justin_O awesome! thanks for the save! 🙏

@financepillowtalk the strategy is adding on the ETFs $MJ and $MJXL , and $TLRY and waiting for the bull run to start so I can start buying calls. Pretty boring right now lol

@celtic I'm definitely picking up more blue-chip tech if the prices take a substantial dip

@financepillowtalk I totally could see that happening. I just can't see what I would rotate my money into. I had tried $FNCL and $FIDU but was unimpressed. I did start building out $FCOM as the next one I think is probably doing well

@ctsshah I honestly don't rotate out of tech much. Most of my tech holdings are companies that I want to own forever. I think tech is a long-term trend that will continue to grow through multiple business cycles. I've just been pausing my tech purchases for now since I think a correction may be on the horizon. But we'll see 🤷♀️

So my strategy is probably a little different. My individual brokerage literally was just $VT , $FDIS , and $FTEC in equal proportions. I then donate all long term ones w/ >50% gains to my Donor Advised Funds and then put my DCA cash towards adding back to each one until all 3 are the same again. This way I get to lock in my profits and protect against a correction, avoid long term capital gains, and…See more

@ctsshah I don't think I have enough stocks with >50% gains to use that strategy 😭
S
“why buy one sector when many do trick” - some genius

@financepillowtalk oh I am running out too! These were the anomaly from investing after the bear market crash of 2020. I will have to refine my strategy in the future. Unless there is another correction that I can capitalize on

Super interesting and practical topic. You'll hear about the S&P 500 being overvalued on a historical basis, but not all 500 companies are at an all time high. I completely agree with @ThePirateKing that sector rotation does not have to mean selling securities in overvalued sectors as much as adding to sectors that offer more reward vs risk at the current time. Tech as a whole is pretty overheated…See more