A house, office building, car, paved road, manufacturing plant, power plant, TV, and computer all have one thing in common: None would be possible without the use of basic materials. Unless you’re living under a rock in the middle of the Amazon, you probably depend upon a variety of basic materials everyday. Modern society would not exist without them.
This book’s goal is to help you gain a basic understanding of the Materials sector, its components, drivers, challenges, and history, as well as be a general guide to Materials investing success. Wherever possible, we’ll also help you think critically about the sector to generate your own views, rather than just dictating a bunch of rules. Successfully investing in Materials companies does not require a PhD in chemistry or geology. What is important is a firm grasp of the laws of supply and demand, and understanding what drives the earnings and stock prices of Materials companies.
This chapter covers the basics of the Materials sector, including an overview of common traits across material producers, how materials are priced, and a primer on how basic materials are extracted and processed. At this point, we’re just looking at the firms and their structures. In later chapters, we’ ll translate a firm’s structure into performance (earnings, profitability, productivity, etc.) and detail how to use that to build an appropriate portfolio strategy.
Let’s start with the basics. What’s the Materials sector ...