Within the framework of a “top-down” investment method (more on that in Chapter 7), each guide is an easily accessible primer to economic sectors, regions, or other components of the global stock market. While this guide is specifically on Materials, the basic investment methodology is applicable for analyzing any global sector, regardless of the current macroeconomic environment.

Why a top-down method? Vast evidence shows high-level, or “macro,” investment decisions are ultimately more important portfolio performance drivers than individual stocks. In other words, before picking stocks, investors can benefit greatly by first deciding if stocks are the best investment relative to other assets (like bonds or cash), and then choosing categories of stocks most likely to perform best on a forward-looking basis.

For example, a Technology sector stock picker in 1998 and 1999 probably saw his picks soar as investors cheered the so -called “New Economy.” However, from 2000 to 2002, he probably lost his shirt. Was he just smarter in 1998 and 1999? Did his analysis turn bad somehow? Unlikely. What mattered most was stocks in general, and especially US technology stocks, did great in the late 1990s and poorly entering the new century. In other words, a top-down perspective on the broader economy was key to navigating markets—stock picking just wasn’t as important.

Fisher Investments on Materials will help guide you in making top-down investment decisions specifically for the Materials sector. It shows how to determine better times to invest in Materials, what Materials industries and sub-industries are likelier to do best, and how individual stocks can benefit in various environments. The global Materials sector is complex, covering many sub-industries and countries, each with unique characteristics. Using our framework, you should be better equipped to identify their differences, spot opportunities, and avoid major pitfalls.

This book takes a global approach to Materials investing. Most US investors typically invest the majority of their assets in domestic securities; they forget America is less than half of the world market by weight—over 50 percent of investment opportunities are outside our borders. This is especially true in Materials. Many of the world’s largest Materials firms are based in foreign nations, including several in emerging markets. Since the vast majority of the world’s natural resources are located outside of the US and operated by non-US firms, it’s vital to have a global perspective when investing in Materials today.

Part II, “Next Steps: Materials Details,” walks through the next step of sector analysis. We’ll take you through the global Materials sector investment universe and its diverse components. With so much focus on higher metal prices in recent years, it’s easy to forget Materials isn’t just about copper, gold, steel, and the other metals—though they are certainly important. There are currently 15 sub-industries within the global Materials sector. We take you through each in detail—including how they operate within the sector and what specifically drives each sub-industry—so you can analyze the current operating environment to choose which sub-industry will most likely outperform or underperform looking forward.

Part II also details where to find and how to interpret publicly available industry data to assist in your decision-making process. It’s possible to get the necessary data for making educated bets on basic material prices, sub-industries, and individual stocks using just a handful of websites and publications. You’ll learn how to critically look at a sector: what to look for, what resources you can use, what the challenges are.

Part III, “Thinking Like a Portfolio Manager, ” delves into a top-down investment methodology and individual security analysis. You’ ll learn to ask important questions like: What are the most important elements to consider when analyzing mining or chemical firms? What are the greatest risks and red flags? This book gives you a five-step process to help differentiate firms so you can identify ones with a greater probability of outperforming. We’ ll also discuss a few investment strategies to help determine when and how to overweight specific sub-industries within the sector.

Note: We’ve specifically kept the strategies presented here high level so you can return to the book for guidance no matter the market conditions. But we also can’t possibly address every market scenario and how markets may change over time. And, many additional considerations should be taken into account when crafting a portfolio strategy, including your own investing goals, your time horizon, and other factors unique to you. Therefore, you shouldn’t rely solely on the strategies and pointers addressed here, as they won’t always apply. Rather, this book is intended to provide general guidance and help you begin thinking critically not only the about Materials sector, but investing in general.

Further, Fisher Investments on Materials won’t give you a “silver bullet” for picking the right Materials stocks. The fact is the “right” Materials stocks will be different in different times and situations. Instead, this guide provides a framework for understanding the sector and its industries so that you can be dynamic and find information the market hasn’t yet priced in. There won’t be any stock recommendations, target prices, or even a suggestion whether now is a good time to be invested in the Materials sector. The goal is to provide you with tools to make these decisions for yourself, now and in the future. Ultimately, our aim is to give you the framework for repeated, successful investing. Enjoy.