% of portfolio in one "sector" - What constitutes a sector?

Discussion in 'Risk Management' started by Skibbs, Nov 3, 2009.

  1. Skibbs


    I have always heard as a general guideline that your portfolio should never exceed 25% of its capital in one sector, or around 10% in one stock.

    My question is, what necessarily constitutes a "sector".

    Is Energy (which can comprise of oil, natural gas, coal, uranium, etc) an industry or sector? Or are the types of energy I have in parenthesis the sectors?

    Is Metals (which can comprise of Steel, Copper, Gold, Silver, etc) an industry or sector? Or are the types of metals I have in parenthesis the sectors?

    I ask because I find myself lately being very heavy in commodities but am unsure on whether I am exposing myself to too many stocks that are in the same sector.

    It seems that there is a gray area in this matter. Even some have told me that "commodities" which would include everything in Energy and Metals is a sector.

    Any clarity that could be given would be great, thanks.
  2. those general guidelines are "b s"
  3. Gold
    Consumer Descretionary
    Consumer Staples
    Basic Materials
    International (Emerging Markets)

    - Spydertrader
  4. Arnie


    A better way to think about it is to say have no more than 20% in any one IDEA. Sectors can be highly correlated.
  5. Banjo


  6. I think about it more like don't let your ideas add up into an unintended sector bet.