Please accept my apologies for not staying in touch. I will continue on the bottom up investing approach in my next post, from where I left last. For now, I thought this one will be quick - the Industries and sectors I stay away from.
I have pledged to myself to stay away from the below Industries/Sectors simply because I cannot understand the business and hence cannot evaluate it or the business is highly regulated by the government and hence such companies have to price their products basis government controls.
- Oil and Gas - Oil Marketing/Drilling/Refineries
- Certain edible commodity business - Tea/Coffee producers. There are a lot of global demand and supply factors in these business which I cannot fathom! Drought in India, Flood in Brazil what not?
- Mining - Gold/Iron ore/Coal/Copper etc - most of them are government run. I pay double attention before investing in a government run company
- Airlines - Again some extent of government control + high dependency on crude oil price fluctuations
- Telecom - Want to stay away from business that are subject to technology obsolescence
- Power Generation - Again government controls are heavy here; I am fine with power distribution and power ancillary companies like transformers and electric cables
- Cement - Too many players, too much competition
- BioTech - Very complex products for me to understand - not within my circle of competence
- Alcoholic Beverages - Way too much social hoopla; lot of public emotions and some government control
- Steel - A classic cyclical industry, entry and exit timing is critical, margin for error = 0, commodity business. Instead go for special steels and alloys if you want to. Check the charts of most steel companies - they are sinusoidal waves!
- Generic Textiles - Plain Vanilla Cotton yarn and fabric manufacturers - no moat. India is one of the largest textiles player in the world. Now that means certainly a lot of players in this sector, which then means competition
- Listing these down helps you cut noise! This also leaves you out with lesser industries/companies to filter on further.
Unless I understand exactly how the company makes money, who are its customers, raw materials, Its products, its clients, the business model, immaterial of if the company is run by a marquee businessman I will not buy that stock.
So sit back and introspect and make your "AVOID" list in mind and then stick to it. There are plenty of other industries and sectors still available for you to look into. If I understand chemicals business well you may not and vice versa.
See you all soon!
