Reading the Industry
The metrics that matter sector by sector, the macro chain that moves everything at once, and what bull and bear markets actually mean.
- 01Each sector has its own scorecard; applying software metrics to a bank produces nonsense in both directions.
- 02One chain drives most broad market moves: inflation, then the central bank, then bond yields, then every valuation.
- 03A bear market is a fall of 20% or more from the peak — a recurring feature of equity investing, not a malfunction.
Every sector has its own scorecard
3.1Why one metric set does not travel
A supermarket running a 3% net margin is performing well. A software company at 3% is in serious difficulty. A bank carrying enormous debt is operating normally, because debt is its raw material. Judging any of these by another’s standard produces a confident, wrong answer.
3.2Whether the business can defend its position
Sector metrics tell you what good looks like. They do not tell you whether this particular company gets to keep it. A profitable position attracts competitors, competitors drive prices down, and the profits that attracted them disappear — unless something specific stops that happening.
That defence is the moat, and the durable ones are few. A good product is not among them: anything a well-funded rival can copy inside eighteen months is a head start, not a barrier. Run the six tests below against a company you are actually considering.
Before judging any number, ask what normal looks like in that industry — and then whether this company can defend it. A P/E of 8 is unremarkable for a bank and a red flag for a software business.
The macro chain and market regimes
3.3One chain explains most broad moves
Inflation data determines what the central bank does with interest rates. Rates set the return available on government bonds. That bond yield is the baseline every other investment is measured against — so when it rises, profits expected far in the future are discounted harder, and the companies whose value rests on distant profits fall furthest.
That is why an interest-rate decision in Washington moves a European software share that has no US customers. The mechanism is the discount rate, not the business.
The table gives you the direction for five segments. The skill is applying the mechanism to a business the table does not list — and to a rate move in either direction, which is where memorising the table stops helping.
3.4The dates that move markets
- Central bank meetings — the US Federal Reserve and the European Central Bank each set rates eight times a year.
- Inflation releases — CPI is published monthly and is the largest single input into the rate decision.
- Earnings season — four times a year, most large companies report within a few weeks of each other.
- Guidance within those results, which frequently matters more than the quarter being reported.
3.5Bull markets and bear markets
You cannot forecast the regime, and trying is how most private investors lose money. What you can do is size positions so that a 30% market fall is survivable, and know which way rates are moving before buying anything whose value depends on distant profits.
The Market Analysis tab shows the regime, the VIX and a sector heatmap. It reads very differently once you know what drives each sector and which way rates are moving.
Market Analysis