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best business sector to specialize in as an investor


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Lately Ive been considering the value really drilling down and getting to know one or two business sectors in great detail.  Then waiting for the fat pitch to arise in a business in that area.  Now I think that some areas are possibly more valuable to specialize in than others because of the nature of the businesses and the nature of the opportunities which may arise. 

 

Im curious to know what  people think are valuable areas of focus and why?

 

 

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Maybe stick to the industries that are easier to understand + easier to perform due diligence on.

 

Very difficult industries:

Investment banks

Some areas of insurance

Mining

Development-stage pharma

 

"Less" difficult:

Oil and gas

Enterprise anything, e.g. IT companies like IBM

Health care

 

Next tier:

Railroads

Utilities

Small banks

Financial services

Payment networks, payment processing

Broadcasting

Content companies (Disney, Netflix, etc.)

Manufacturing

Home builders

Asset management companies

 

Relatively easy:

Retail

Real estate

Consumer products

Food

Restaurants

 

Really easy:

Certain forms of arbitrage

Closed end funds

Companies that own mostly cash and stocks

 

Difficult to predict:

Technology  (e.g. read Bill Gates' book The Road Ahead and see how many failed predictions are in that book)

 

While information on many areas of technology are available on the Internet, I don't like areas where even the smartest people have difficulty predicting the future.

 

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I would personally stay away from the stuff that is really difficult.  In hindsight, I realize that mining is extremely difficult even if you are well-read.

 

I've been trying to sharpen my knowledge of retail because there's a lot of stocks and lots of good long/short opportunities.  Some people like the late Sam Walton have become incredibly rich from retail.  Figure out what works for you though.

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Lately Ive been considering the value really drilling down and getting to know one or two business sectors in great detail.  Then waiting for the fat pitch to arise in a business in that area.  Now I think that some areas are possibly more valuable to specialize in than others because of the nature of the businesses and the nature of the opportunities which may arise. 

 

I think that is a bad idea. I view investing as opportunistic. Its possible for any sector to be undervalued and a great source of investment ideas and these sectors change over time. You are best finding an area where values are depressed or something strange is going on and figure it out. It doesn't make any sense to me to choose a business sector, study it and then wait for a fat pitch.

 

The other thing is that I don't think there is a huge advantage to being an expert in a business sector. In my view, in investing, additional knowledge has a huge diminishing utility. For instance Buffett got a lot of mileage out of understanding how Coke was going to grow in foreign markets but not a lot out of knowing that Coke has no taste memory. A lot of the research investors do is more about becoming comfortable about what they are doing then it is about adding utility to their investment decisions.

 

Its a lot like when you meet a girl and you are both really attracted to each other. Its rarely the case that you jump right into bed right away. Often there is a lot of talking first. But the talking is mostly superfluous. It doesn't in anyway alter the ultimate endpoint...that's often a foregone conclusion. Its just a way of getting comfortable with what happens next  :P

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