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One aspect: Are only a few stocks in this sector listed in the stock market?

Tuesday 24 May 2016

Most investors are not aware of an important point,  which is, whether there are many or just a few stocks in a specific industry sector listed on the stock market.

On the stock market, prices are not only determined by using objective valuation criteria. Far from it. There are only supply and demand factors which

determine market prices. A small but very important aspect is hereby overlooked by nearly all  investors.


What do you think, for example, when you hear in this regard the words "supply and demand"? You will certainly think of market participants, those who buy shares on the one hand and  those who sell shares on the other hand.


In my research looking for exceptional stocks to buy, I naturally think of "supply and demand". But in a different context. I focus on how much supply there is: Namely, the range of listed securities in each industry sector!


What interests me is how many companies of a certain sector are listed in total on stock exchanges worldwide. So how many investment alternatives are there in this business sector. If only a few companies are available in each business sector, then this for me,  is the first positive step. My research traffic light switches to green.


It does after all make a difference if, for example, you can only choose from 50 shares or from four shares in a business sector listed on the market. The fewer public companies are listed, the more money large institutional investors and pension funds will allocate to the industry sector. And that can have a significant impact on share prices. Particularly in the long run.


And  there really are such interesting clusters. Two examples:

First: How many premium chocolate manufacturers are listed on the world's stock exchanges?

You will be amazed: One single company. The Lindt & Sprüngli AG on the Zurich Stock Exchange. So if you have to place money in this sector, whoever

wants to invest in premium chocolate manufacturers from New Zealand to Vancouver, eventually in the end is left with the Lindt & Sprüngli shares.


Second: How many listed companies are very focused in the growth sector "lifts and escalators"? Just two companies:

KONE in Finland and SCHINDLER in Switzerland (the three other competitors Thyssen, Otis and Mitsubishi are parts of conglomerates). Anyone who wants to benefit as a shareholder from the trend by investing in high-speed elevators and lucrative elevator maintenance contracts is ultimately left to buy the shares of KONE or SCHINDLER.


Of course, not all are companies, of which there are only a few listed in the  industry sectors of the exchange, automatically qualify as investments. Over the years, my research approach which was helpful was to focus on "What-is-only-seldom-available-in-the-market?" It does not surprise me that I owe a number of my “high-fliers” in the portfolio to this method of analysis.