If you listen to any analyst talk about the market they talk in terms of sectors. When I started managing money focusing on sectors made the market visual to me. This in turn made it easier for me to develop and implement trading strategies based on sector rotation. It also made it easier for me to teach my clients how to see their portfolio. Advisors are too often guilty of talking to their clients in terms of the market versus the sectors which make up the market. Talking in terms of sectors simplifies the investment process. As we have already discussed, simple is better from my view. When looking at the S&P 500 index there are 10 sectors which make up this index. This makes it simple for us to track what is happening in the broader market by tracking what is happening in each of those sectors.

On my website SectorExchange.com I track those sectors every day. I have a simple ranking of leader, loser or limper. This allows me to quickly see what is leading or lagging the market, as defined by that index. The additional simplicity of this is that I can match ETFs against these indexes with the SPDR funds. For example, if financials are weak and in a downtrend I can take them out of my portfolio. If energy is leading and in a strong uptrend, I can overweight it to my portfolio. This allows me to be in complete control of my portfolio allocation. In other words, I can invest in the niche (sector) of the market that meets my discipline for investing and avoid the sector(s) that don't . This is the key to taking control of your portfolio in the simplest form possible. You can always make it more complex as you learn what fits your personality (psychology) and educational expertise.

As I stated above, if you like a sector such as energy you can own it through an ETF such as IYE. If you want to drill further into the sector you can simply look at the subsectors and determine which of them meet your criteria or discipline for investing. If oil services such as drillers are moving up and you want to add that as part of your strategy you can buy OIH which is the ETF for that subsector. You can take it all the way down to the individual stock level if you desire and use your same strategy to invest. This drilling process allows you to invest at whatever level you wish and build your portfolio according to your criteria. This niche investing style allows you to be in control of the process at whatever level you desire, and feel comfortable investing. Again, it comes down to a discipline strategy and approach to managing each position that makes up your portfolio.

This is part 7 of a daily educational series Jim will provide until next week, exclusively here on greenfaucet.  Click here to read part 6