Consumer Cyclicals

Imagine you're standing at a Craps table in Las Vegas. There's a guy there who has a big cowboy hat on, and he's been throwing the bones for a good 20 minutes. Every time he throws the dice, he's hitting 7 or 11. The crowd is going wild, and you're betting alongside him. Every time he wins, you win. Your wins correlate with his wins. You’re probably going to get comped alongside him if he keeps it up.

But suddenly...he hits a cold streak. And as he begins to lose, you also lose. That’s the basis of a category of stocks called consumer cyclicals.

In the scenario above, the man in the cowboy hat is the U.S. economy, and you’re a sector like automobiles, housing, retail, and media. This class of stocks requires strong U.S. economic fundamentals and growth to perform. During periods of economic expansion, we see consumers pour disposable income into consumable products. This category includes durable goods like cars and refrigerators, and non-durable products like whiskey, ketchup, and decorative soap.

Come to think of it: whiskey does well in any economy.