How to Classify Stocks
Categorizing Stocks by Sector, Size and Index
There are so many thousands of public companies that finding a place to begin stock picking can be overwhelming.
Fortunately, stocks can be categorized in various ways, of which the most common are sector or size.
Classifying Stocks by Sector
It is possible to narrow the stock search by only focusing on the sectors which appeal, i.e. those that are already known and understood, or those that carry the appropriate level of risk.
While each company should be assessed individually, it is fair to say that some sectors are inherently riskier than others. For instance, the gambler may decide to invest in a mining exploration company. If it strikes gold, the investor will have hit the jackpot.
On the other hand it might explore for years and never find a commercial deposit. The investment could turn out to be worthless.
Other companies, like those in the food or banking sectors, are geared toward building up steady growth in sales and profitability. This should generate steady returns for investors, which is considered lower risk. Keep Reading