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How to select stocks
The Citizen
|April 09, 2025
ALWAYS DIVERSIFY: BUILDING A WELL-BALANCED PORTFOLIO
Investing isn't just about picking stocks; it's about understanding how different sectors respond to economic conditions. Some industries thrive when economies boom but struggle in recessions, while others provide steady returns no matter what.
By diversifying across sectors, investors can reduce risk and improve long-term performance. This guide breaks down key stock sectors, their role in a portfolio, and who they're best suited for.
Cyclical stocks - riding economic waves
What they are: Cyclical stocks perform well in economic upswings but decline during downturns.
Role in a portfolio: Offers high growth potential during strong economies but requires tolerance for volatility.
Suitable for: > Investors with a higher risk tolerance; and > Those looking to capitalize on economic recoveries.
Examples of cyclical stocks: > JSE: Richemont (CFR) - Luxury goods giant (Cartier, Montblanc) benefiting from wealth.
> JSE: Naspers (NPN) Tech-driven holding company with a stake in Tencent.
> Global: Tesla (Nasdaq: TSLA) - A leader in electric vehicles, sensitive to economic conditions.
> Global: Nike (NYSE: NKE) Sportswear brand dependent on consumer spending.
Defensive stocks - stability in uncertain times
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