Part 3 – Lesson 5


As of 2018, there are a bit less than 4,000 publicly traded companies in the United States.  It is an impossible task to follow all these stocks.  Given the sheer number of publicly traded companies, many professional investors choose to specialize in a specific industry.  Professional equity investors can usually be broken down into either “generalists” or “sector specialists.”  Being a generalist is hard work.  It requires learning about a lot of different industries and about a lot of different companies within that industry.  The advantage of being a generalist is that you can build a more diversified portfolio, but the disadvantage is that having a larger investment universe can mean that your knowledge base is wide but shallow.

A sector specialist on the other hand aims to have a knowledge base that is narrow but deep.  For example, an investor that focuses on consumer and retail companies will focus exclusively on finding investment opportunities in companies that sell consumer goods and services such as Nike, Lululemon, Nordstrom, Macy’s, Walmart, Target, etc.  Due to the narrower investment universe, these analysts will typically gain a deeper understanding of the consumer/retail industry and the companies within it.  The clear disadvantage of being a sector specialist is that it is more difficult to build a diversified portfolio of stocks.

Individual Investors – Generalist or Specialist?

Most individual investors will likely want to own a diversified portfolio of stocks.  To accomplish this, you will need to find ideas from many different industries, which means you will need to become a generalist over time.

However, you must start somewhere.  We’ve found that is often helpful to build your experience by tackling one industry at a time rather than jumping from one industry to the next.  For example, if you are interested in the Internet sector, it may be helpful to fully research and understand all the major players in the space including Google, Facebook, Amazon, Netflix, Paypal, Priceline, etc.  After gaining a firm handle on the Internet companies, then, expand your investment universe to include tech companies such as Apple, Dropbox, Microsoft, Adobe, etc.

From there, you can keep expanding your coverage universe one industry at a time.  Learning about an entire industry and the major players in that industry provides for a deeper level of understanding than simply trying to learn about 1-2 companies in isolation.  For example, if you are contemplating an investment into United Healthcare, it is difficult to make a determination on the attractiveness of the company without also doing research on its primary competitors and other players in the value chain.

Creating Ticker Lists

As you start to research new companies and new industries, it will be helpful to create ticker lists to follow the stock prices of the companies in your investment universe.

Different trading platforms (Ameritrade, E-Trade, Interactive Brokers, Charles Schwab, etc.) have different capabilities for creating ticker lists, but most of the online brokerage firms will have some ability to create a large list of tickers, which you can use to scan the stock prices of the companies in your investment universe.

This can be helpful in identifying opportunities.  For example, if you have previously researched Facebook but are waiting to buy it at a lower price, it is helpful to include FB in your ticker list to regularly track the FB stock price.  Having FB as part of your ticker list will make it easier to identify opportunities when FB stock trades lower.

The size of your ticker list is completely up to you.  It may consist of 50 stocks or 250 stocks.  It just depends on how many stocks you want to keep an eye on.  The one caveat to creating ticker lists is to not waste time staring at it!  It can be incredibly addictive and time-consuming to stare at stock prices changing real time throughout the day.  Remember, if you are a long-term investor, your time is better spent researching new ideas then staring at the stock prices of tickers in your universe.