Weekly Lesson Wednesday📝 

Cyclical VS Non-Cyclical stocks

^_Lesson
Cyclical vs. Non-Cyclical Stocks

Today I’m giving you guys just something to be aware of more than a regular lesson. It’s all about cyclical and non-cyclical stocks. There are many theories about cyclical investing and all that which we can dive into another time. For know I just want to give you a low down on this.

If you don’t know the terms cyclical and non-cyclical refer to how closely correlated a company's share price is to the fluctuations of the economy. Cyclical stocks and their companies have a direct relationship to the economy, while non-cyclical stocks repeatedly outperform the market when economic growth slows. Sort of a yin and yang in the investing world. It’s nice to incorporate both for diversification, but to do that you need to be able to identify them.

Investors cannot control the cycles of the economy, but they can tailor their investing practices to its ebb and flow. Adjusting to economic transitions requires an understanding of how industries relate to the economy. There are fundamental differences between companies that are affected by broad economic changes and those that are virtually immune to them.

CYCLICAL STOCKS 🌀

Like I said Cyclical stocks are shares of companies whose performance is closely tied to the overall economic cycle. These companies tend to perform well during periods of economic expansion and suffer during periods of economic contraction. Hence, they are volatile.

Many people try to invest cyclically. Which involves trying to time their investments in cyclical stocks based on the economic outlook. So they might Invest in these stocks during the early stages of an economic recovery which would be be profitable. However, while holding them during a downturn can lead to losses.

Some prime examples of these stocks are stocks in the automotive industry, consumer durables, airlines, luxury goods makers, and hospitality stocks.

NON-CYCLICAL STOCKS ❌

Non-cyclical stocks repeatedly outperform the market when economic growth slows. They may also be known as consumer staples since they are always in demand as basic needs. Non-cyclical securities are generally profitable regardless of economic trends because they produce or distribute goods and services we always need, including things like food, power, water, and gas.

Non-cyclical stocks are your old reliables .They come in clutch when shit hits the fan. They aren’t glamorous or pretty, but they are safe and good to have around.

Examples of these stocks would be consumer staple goods, food, gasoline, utilities, and pharmaceuticals/healthcare. Shit that you always need regardless of the economic outlook. like soap or shampoo. Most people don't feel they can wait until next year to lather up with soap in the shower. I do emphasis “most” people because I do know there are some freaks out there.

These are great but don’t expect these to buy you the Porsche. There is a reason they are safe and it’s because demand is generally always stable with this stuff and when the economy rise and profits are good they won’t be going crazy like the cyclical boys.

Thank you
That’s All Folks

Thank you for reading. Like usual. Not financial advice.

Full disclaimer here

Cheers,