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What Is an Industry Bet?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 September 2016
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    Conjecture Corporation
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An industry bet is a type of investment strategy in which an investor deliberately chooses to adjust the amount of holdings he or she possesses that are associated with a given industry. As part of this approach, the investor may choose to sell off a percentage of the assets related to that industry, or choose to sell other assets in order to acquire more holdings in that industry. The industry bet is usually employed when the investor has reason to believe that certain events are about to occur within the market that will have a significant effect on those holdings associated with a particular industry.

The general idea of an industry bet is to evaluate relevant data and use that information to project what will happen with the investment opportunities associated with a given industry. This is in contrast to assessing the prospects of stocks issued by individual companies within that industry and making decisions based on those findings. With an industry bet, the focus is on what will happen with that industry overall, how those events are likely to impact the value of securities associated with companies in that industry, and then either decrease or increase the investor’s holdings in those companies.

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There are differences of opinion on the efficacy of using an industry bet approach. Proponents see this as a prudent way to evaluate the prospects of a given industry in the marketplace, making it a quicker means of deciding if that particular industry is even worth considering for investment purposes. Assuming the projections indicate an upward movement for the industry as a whole, this would mean that shares of stock associated with companies in that industry would be highly likely to yield at least some returns. If the idea is to balance the portfolio with assets associated with several different industries, this approach can be used to determine which industries to include and which ones to avoid.

Detractors of the industry bet note that not all companies associated with a given industry will follow the general trend of the market. For example, while four of the five major players in a given industry may suffer losses in a given economic climate, the fifth one may actually thrive, a phenomenon that would allow its investors to enjoy significant returns. Rather than simply making investment decisions based on projected performance of an industry in the marketplace, going one step further to evaluate the prospects of specific companies within that climate would be a more prudent approach.

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