Do you ever wonder how market experts like Jim Cramer or David Faber manage to keep track of so many different companies and sectors on a daily basis?
They seem to possess an almost inhuman ability to rattle off ticker symbols and key statistics at a moment’s notice. You might feel as if such a feat is only possible for professionals with decades of experience working on Wall Street.
Luckily, there’s a simple trick you can use to achieve similar market guru expertise that doesn’t require a finance degree and a career on Wall Street. In less than an hour, you can set up your own Wall Street headquarters that allows you to quickly keep track of market movements, important events, and the latest trends.
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Designing a Reference Portfolio
The trick to keeping your finger on the pulse of Wall Street is to build your own selective market index. Staying on top of just two or three stocks for each market sector is a lot easier than trying to follow all 500 members of the S&P 500 Index.
The generally accepted list contains 11 market sectors, but you can include more. Below is a breakdown of each sector and a couple of picks from each to give you an idea of how to set up your own selective market index.
- Energy
Exxon Mobil (XOM) – A $322 billion large cap integrated oil and gas conglomerate
ConocoPhillips (COP) – A $119 billion large cap oil and gas exploration and production company
- Materials
Freeport McMoRan (FCX) – A $61 billion large cap copper and gold mining company
Alcoa (AA) – A $12 billion mid cap aluminum mining and production company
- Industrials
CSX Corporation (CSX) – A $77 billion large cap railroad transportation company
Waste Management (WM) – A $62 billion large cap waste management company
- Utilities
Duke Energy Corporation (DUK) – A $78 billion large cap regulated electric utility company
NextEra Energy (NEE) – A $144 billion large cap clean energy electric utility company
- Healthcare
Baxter International (BAX) – A $42 billion large cap medical instruments and supplies company
Pfizer (PFE) – A $304 billion large cap drug manufacturer and biotechnology company
- Financials
JPMorgan Chase (JPM) – A $440 billion mega cap banking and financial conglomerate
Goldman Sachs (GS) – A $115 billion large cap investment banking conglomerate
- Consumer Discretionary
McDonald’s Corporation (MCD) – A $185 billion large cap restaurant chain
Kohl’s Corporation (KSS) – An $8.6 billion mid cap retail department store chain
- Consumer Staples
Proctor and Gamble (PG) – A $381 billion mega cap household goods and personal products manufacturer
The Coca-Cola Company (KO) – A $258 billion large cap beverage conglomerate
- Technology
Netflix (NFLX) – A $203 billion large cap entertainment media and communications services conglomerate
Advanced Micro Devices (AMD) – A $137 billion large cap semiconductor manufacturer
- Communications
AT&T (T) – A $175 billion large cap telecommunications services company
Nexstar Media Group (NXST) – A $6 billion mid cap broadcasting and telecommunications company
- Real Estate
Boston Properties (BXP) – An $18 billion mid cap office real estate investment trust (REIT)
Omega Healthcare Investors (OHI) – A $7.2 billion mid cap healthcare facilities real estate investment trust (REIT)
Know Your Indicators
Certain stocks act as economic barometers and can tell you something about the state and direction of the market depending on what is underperforming or outperforming. A few examples are listed below.
- Luxury Retailers – Luxury retailers generally perform well even when the economy begins to slow down.
- Discount Retailers – When discount retail chains are outperforming, it can mean consumers are anticipating an economic slowdown.
- Railroads – Railroads typically outperform when the economy is booming and there is a high demand for goods that need to be transported.
- Gold Miners – Gold mining stocks are a good way to play gold prices and perform well when inflation is high and interest rates are lagging behind.
This is not an exhaustive list so investors may want to try searching for particular indicator stocks that appeal to their investment style as well.
Choose a Niche Market
If you want a sharper edge in the market, it helps to pick a specific niche or two that you can zero in on and follow closely. While the broader market sector watchlist will give you an overview of what’s happening in the markets, a more detailed niche one will give you expertise in that field.
Let’s say you have a specific interest in the robotics industry. You can build a small watchlist of the biggest robotics companies that allows you to quickly follow interesting reports or market-moving events happening in the industry.
Your robotics sector watchlist might include stocks like iRobot (IRBT), ABB Ltd (ABB), and Rockwell Automation (ROK). Keeping tabs on this niche sector by following just a few names will give you a better idea of what the trends are and what potential opportunities await.
Feel free to experiment and come up with your own niche.
Don’t forget to go over our recently launched model portfolios and sector best lists here.
Final Considerations
One last note to help you become a stock market guru in your own right is to keep a watchful eye on three additional elements: the 10-year Treasury rate, gold prices, and oil prices. Tracking how these three assets change over time can tell you something about investor sentiment, market volatility, and inflation – all critical components of an investor’s due diligence.
You may also want to check the average price-to-earnings rate of stocks in the S&P 500 Index. The historical average is somewhere around 15 while the current multiple is over 25 – a sign that markets may be showing signs of being overvalued.
Creating your own index watchlist, along with a few key variables to keep an eye on, is all it takes to go from novice investor to stock market guru!
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