The sharemarket has many different
sectors, and stocks have vastly different investment
profiles, hence terminology such as blue chip,
speculative, growth, defensive,
yield, situation, recovery and
other terms, meant to help distinguish the main feature
of a given stock.
A so called defensive
stock, for instance, is one that may not be a
meteoric performer, but hangs in there well when the
market or economy falters and maybe even thrives on
adversity. Food, alcohol and gambling stocks for example
are noted for being good defensive stocks because
people still eat and drink in a recession and paradoxically
are inclined to gamble even more.
A situation
stock refers to a stock whose price is being driven
by some special factor such as a takeover battle or
severe liquidity problems.
A recovery
stock is one perceived as having been 'oversold',
or in other words one that has fallen too far and
has good potential to bounce back, often with a recovery
in its economic sector, and so forth.
For the gambler, the most relevant
type of stocks are the specs, meaning speculative
situations. These are most commonly found in the mining
and exploration, oil and gas, technology, biomedical
and internet sectors. The term 'speculative stocks'
includes the infamous 'penny dreadfuls', lowly valued
companies with share prices usually measured in the
cents and with questionable prospects.
Definition of a small Australian mining company:
A hole in the ground with a liar at the top.
Perhaps a little harsh, but such
homespun wisdom often contains a grain of truth. One
is reminded of the cruel but not inaccurate riddle
doing the rounds after the property market collapsed
in the late eighties...
Q: What's the difference between
herpes and a piece of Queensland real estate?
A: One day, with a lot of
luck, you might be able to get rid of herpes.
The point I am making is that
some stocks have virtually no connection to the real
economy, or indeed normal concepts of business at
all, and are more akin to buying a raffle ticket.
The economic 'pie' might expand by twenty percent,
but the owners of such stock would not necessarily
get to eat more pie, because such stock was never
really part of the pie in the first place. Commonwealth
Bank is a real business, whereas Hole in the
Ground Pty Ltd is probably not.
NEXT ... Market
capitalisation
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