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But why are these two groups important? A couple of reasons, actually. First, knowing whether a company is cyclical or not will help you determine its earnings. Second, the investing strategy employed by all money managers is based on when to buy cyclicals or seculars depending on how the world’s economies are doing at any given moment. (The move back and forth between one and the other is called “rotation,” another term worth knowing.) And these are the guys who virtually set the market’s share prices for the short term.
Plus, about 50 percent of the performance of any individual stock comes from its sector—tech, health care, energy, etc. And when it comes to sectors, much of their moves are driven by whether they are either cyclical or secular.
Given these explanations, the right way to trade these stocks is probably obvious. Steer clear of cyclicals when the economy’s tanking; pile into them when it’s revving up. The opposite is true for seculars. You want the protection these steady earners offer when the business environment is weak, but they won’t do your portfolio much good during the boom times.
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