Are you investing in the right industry?
Part 2
Factors that drive demand vary across (industries), and are too numerous to list. However, it is important to note that demand can be categorised as "(seasona)l", "cyclical" or "secular". As the word suggests, seasonal fac-tors recur year after year. Cyclical factors, on the other hand, follow
very (closely) to the economic cycles of the market. (Secular) factors are more long term in nature. Seasonality or economic cycles will have minimal impact on secular trends.
Take an airline as an (illustration). Most Singaporeans take their vacation in December. That is why airline seats are difficult to secure during that time. This is the seasonal factor because it occurs every year around the same time. Having said that, Singaporeans usually take vacations more (frequently) when the economy is doing well, and less so during reccessionary times. The rise and fall in demand in accordance to economic activities is the (cyclical factor). Finally, the middle class population in Singapore has been rising over the last 20 years. This group is generally more affluent. Part of the lifestyle usually includes taking regular vacations to exotic (destinations). Such lifestyle doesn't change annually, nor does it follow the ups and downs of economic growth. The demand for air travel will grow so long as the middle class (population) continues to
increase. This is an example of secular demand.
(Classifying) demand factors into these categories is very useful. As long-term investors, we do not want to be (constantly) reacting to signs that are short term and volatile in nature such as seasonal, and to a lesser extent, cyclical trends. Buying and selling stocks based on these short-term trends are not only expensive (brokerage cost) but difficult to time as well. Instead, we should focus on long-term trends. They usually have a longer and more (permanent) impact on share prices.