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Company Competitors vs. Stock Peers

Written by Andrew Kerr Monday, 28 September 2009 20:45

From an investor's perspective, peer grouping definitions have become increasingly intricate due to the ever-growing complexity of listed companies, which range from local and single product firms to global multi-sector conglomerates. The definition of 'peers', will depend on an individual investor's investment strategy and goals. There are no shortage of different investment strategies in use today. With the increase in the availability and complexity of backtesting tools, investors can create and test a strategy with a few clicks. However, there are some widely accepted strategies, both for individual investors and mutual funds, such as value investing, growth investing, or investing based on industry/sectors. The distinction can be drawn between investing based on fundamental indicators such as P/E multiples or economic value added (as in value, growth etc), and the more subjective determination of a company's main business line (industry/sector based strategies). Why then do we continue to rely on a company's industry as the main determinant of its peers?

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