Targeting Business and Stock Segments-Part 5 of 5

Here is a link to a post that you should read:

http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp?value=BR0801&ml_subscriber=true&ml_action=get-article&ml_issueid=BR0801&articleID=R0801E&pageNumber=1

This last post in the series on targeting will try to apply Professor Porter's concepts to stock investing.

Structure is the last element of S4.

Governments, technologies, social trends, and Mother Nature, are four overpowering forces that structurally change sector and industry targeting. Even if three elements of S4 are stable, structure alone can upset the apple cart.

China is a prime example of governance that dominates stock market targeting. Russia is gradually veering towards a similar situation. Government policies are weapons of competition in the United States, where lobbying in Washington is a major industry in its own right. Non-communist parties in India follow the U.S. lead, though the means of influence are not easily apparent. Brazil is heavily influenced by environmental and indigenous concerns. Each country has its own equation between politics and business, and democracies see periodic changes as well.

Technology is a dicey matter. The journey from laboratory to market is long and tortuous. A drug may pass one clinical trial with flying colors, only to fall at the next hurdle. Many electronic technologies first appear well ahead of time. Imagine what would have happened if India had persisted with socialist propaganda against computers in the 1970s. Some technologies suffer from the abuse of power politics. The best telecommunications technology can give way to an inferior one in which powerful people have business interests. The worst part is that technology does not stand still. Today's wonder calculator is junk tomorrow. Stock portfolio targeting cannot work unless the dynamics of technology are taken in to account.

Generation gaps are infamous but inevitable. Young people with new purchasing powers create upheavals in the market. Similarly, business segments of yesteryear decline as paying customers retire, grow old, and fade away. There were no significant demands for denim and designers when senior citizens of India today were young. How many new tailors start shops every year now? Fashions change within generations. People consume less soda now, but eat more fries. Dining out and fine wines are new status symbols, but buying encyclopedias and charity donations for public utilities have become rare. Suffice it to say that an alert stock investor will look for subtle changes in society, and change stock market targeting accordingly.

Earthquakes, tsunamis, and droughts are stark examples of disruptive elements that can affect any stock portfolio without warnings. Fortunately, the effects of floods are not as lasting. The only action a stock investor can take is to construct low probability but serious scenarios, and to rehearse the best contingent actions possible. That is why it is better to avoid excess exposure to farm production and insurance.

This brings concepts of targeting for stock investing to a juncture. There can be no end to such a voluminous topic, and your posts and emails to StockWay.MyView@gmail.com will always be welcome and acknowledged.

We will take another step on the business and stock strategy journey tomorrow.