I have analysed last 10-20 years data and found majority of stocks of following sectors have not given good returns to long term investors
Airline
Telecom
Power (electricity generation and distribution)
Metal
Automobile
Real estate
Is my analysis okay, or have I missed something ?
Any more sectors if you know, please add.
How could any sector be in profits for years? There will be sector rotation, money moving from one sector to another sector, depending on many factors. And in the intermediate periods, stocks in different sectors go up and down owning to many reasons. So things may have worked for a particular sector in some years, may not have worked in other years.
As they say, every stock is a buy at some price. So stocks from the sectors mentioned may have given good returns in one period or the other, when they were bought at a particular price. Every dog will have its day. Although FMCG like sectors are relatively stable and are considered secular and have given good returns, but with certain dull periods with no return in between. And of course, there will always be certain stocks which become duds right after IPO or later, which even after 10 or 15 years don’t move upwards.
So even if the nature of the sector is such that, a lot of factors influence which are beyond the reach of management of any kind, if one is an expert at cyclical, or can time turnarounds, take contrarian bets, he will be profitable. Also, certain sectors are directly linked to the decisions taken by the government, and these sectors go up or down, depending upon the priorities of the incumbent government and the fortunes get reversed when there is a change in power.
And obviously, a person will have good knowledge if he works in the sector he is investing in, applicable to any sector I guess, he will just wait for the good times and then invest and will be profitable.
I had invested in Indigo and Spice Jet in the past, for some time, and I don’t exactly remember the return but I did make a profit.
There are many ways to skin a cat and this way of skinning is rather tough.
You can check out Kenneth Andrade, if you are interested more.
@ChaitanyaC Agree with your views that any sector can give profitable returns in short to mid term depending on the macroeconomic and political situation. But I was specifically asking about long term investing. Several companies in Finance, IT, Consumer discretionary, Industrial sector have given 20+% CAGR in last 1-2 decade. Eg. Top IT companies (TCS, Infy, HCL), Top pipe companies (Astral, Supreme, Prince) & Top Banks (HDFC, ICICI, Kotak). But the same can not be said about Top Real estate (DLF, Godrej, Oberoi), Top Airlines (Indigo, spicejet, jet airways) & Top Mining companies (Vedanta, NMDC, Coal India). So in my opinion some sectors are inherently better positioned to earn profit and are relatively less cyclic, which gets reflected in their stock performance. May be it is related to being low capital intensive sector. As you mentioned, recognising start and end of a cycle can lead to better results, but i am not skilled enough to recognize the start and end of the cycle yet.
As new technologies and alternative better sources emerge, or change in people’s perception, lifestyles or change of policy - certain sectors come into existence, the sunrise sectors and certain sectors go down and may never come up, the sunset sectors.
And as these new investment arenas come into existence, the old relative secular sectors may not give the same kind of returns, as they did in the past, because the big money has more options now. So if any sector has given good returns for longer periods in the past, it is a reflection of the state of economy and country in that time, it does not need to be the same now.
So if one is a new investor, it is better to go with sectors which relative secular growth or with sectors where one has domain knowledge. And as he gains experience, he can take contrarian, cyclical, turnaround bets. Just like investing in a large cap fund and small cap fund.
I personally agree with
Airlines (there is a opportunity that made us airline to be profitable that is with the help of credit card point as this is one that make them earn money in a better way and if you look at there last stake selling there this buisness is worth by private players more then there whole business as this is actually a net looser this can happen to indian airlines also I personally hate to say but indigo is actually not good at this as there service are to priced high and also much worse that make there partnership card not very attractive that may affect them)
Power( when regulators are there profit are always a question so that might be going away as new age infra lead power ie solar,wind etc are captial intensive but not very high cost of running and also the monthly cost is non volatile so can have changes in future)
Real estate the buisness model is not good for shareholder as this is great way to earn but the earning will never be constant and also leverage make it very hard to understand and also make things look to good and to bad withing a short period of time.
Metal it is a pure long term cycle Play they go up by inflation+1-2% but move in chunks and that make them good to buy and sell if you understand how they play out not a bad place to invest but a hard place to invest.
I personally don’t think telecom and automobile have not given returns.
You are seeing 3-5 year frame where down turn is there but real growth was before that and still company like motheson,maruti and even most good one have given better then nifty returns.
Telecom indian might have not done well as jio come into picture but in past have done well but I really doubt they are anything better then cash cow and less growth is inevitable so invest accordingly.
