In a previous article, we described how to select stocks based on a relative value approach within an industry. In this article, we describe methods for filtering by industries rather than the stocks within them. Many market practitioners emphasize the importance of sector analysis and argue that no matter how good a stock is, it is very unlikely to outperform if the sector is performing poorly. Many of the ideas presented in this section were taken from television presenter and market practitioner, Jim Cramer. What is industrial stock analysis? Industrial analysis is the analysis carried out in a specific sector or industry. This compares to stock market analysis which is the research provided on a particular company and stock, or macroeconomic analysis which analyzes the fundamentals of a specific country. Sector analysis studies the general fundamentals of stocks within the sector, but, more importantly, studies the state of external factors and how they are expected to affect a particular sector or sub-sector. Different macroeconomic data and other statistics have a particular impact on certain industries and analysts evaluate how this data will affect them. In addition, industry analysts also study the level of demand, such as consumer tastes, and supply, such as competition within the industry, and how stock prices are expected to be affected. Why is an industry analysis necessary? Many analysts suggest that resisting the economic cycle is futile. For the simple reason that most prices are governed by large financial institutions that buy and sell the majority of stock volume and these institutions generally place a very heavy weight on the performance or expected performance of a specific sector. After market risk, it is the most influential factor on a stock's performance. To summarize, there are two reasons why sector analysis is important. 1. Generally, a company's performance is a function of industry performance. For example, if the raw materials of a particular industry have increased, all companies in the industry will be affected. 2. Psychological reasons. If a sector suddenly becomes trendy or a sudden change in the news is perceived to be good or bad for a sector, the stock price will be affected primarily by what the average and most investors believe will follow industry trends. Ventilated industries? Industries are divided into groups and subgroups.