3
MATERIALS SECTOR DRIVERS
Simply looking for the best stock is the most common investor mistake. That may sound counterintuitive, but it’s true. Unless you’ve got a firm grasp on a sector’s fundamental drivers and how they impact industries and ultimately individual firms, it’s a near hopeless task to choose the right stocks. High-level sector drivers often have equal, if not greater, influence on a stock’s performance than unique firm-specific fundamentals, so accurately identifying sector drivers is a must.
Every sector has unique drivers relative to the broader economy, and they’re not static—they constantly change. What’s vital in 2008 for Materials may not be exactly the same in 2010. Nevertheless, the factors described in this chapter were chosen because they are relatively timeless and serve as a good starting point for any Materials analysis, regardless of the investing environment.
We can’t cover every detail of every portion of the sector—that warrants an encyclopedia, not a book. Instead, the focus will be primarily on metals and chemicals, because (as Chapter 4 will cover in greater detail) they comprise the majority of the sector and carry the most relative weight.
Note: Understanding the drivers won’t give you direct instructions on how to invest. Investing environments shift too quickly for any definitive “rules” for all time. Rather, it’s about critical thinking. Understanding sector drivers is more like a road map providing the tools and resources to make your ...

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