Sector assignment
Weeks 1–4: Coverage · Capital Allocator Fellowship
Each Fellow is assigned a sector and is responsible for it for the duration of the programme. Coverage extends to every significant company in the sector, its economics, its participants, its history and its current dislocations.
The primacy of coverage
An analyst without sector coverage produces isolated opinions; an analyst with coverage produces comparative judgements, and investment judgements are inherently comparative. Whether a security is inexpensive, or a margin is attractive, can be assessed only relative to peers and to the position in the cycle.
Coverage is what allows an individual valuation to be placed in context.
Deliverables for weeks one to four
A complete universe. Every significant company in the sector, public and private, with its size, positioning, ownership and economics. The universe will typically comprise twenty to eighty companies depending on the sector.
A profit pool map for the current year and for five years prior, with an assessment of the direction of profit migration and its causes.
A cycle history. An account of the sector's performance in the two most recent downturns, identifying which companies failed, which gained market share, and which indicators preceded the downturn. Analysts covering a sector seldom examine its behaviour in 2008 or 2020 in detail, and doing so provides a genuine analytical advantage.
A ranked watchlist with a one-line thesis for each company.
A sector note of approximately ten pages, from which a reader unfamiliar with the sector could identify the factors that determine value within it.
Assessment criteria
The sector note is assessed on whether it conveys a non-obvious insight. A description of the sector is not sufficient. The note must advance a proposition about the sector that is specific, supported by evidence and falsifiable.
Work this through
Submit the sector note by the end of week four, comprising the universe, profit pool map, cycle history, ranked watchlist and a central non-obvious proposition.
The note should be approximately ten pages. It will be reviewed in detail in week five.
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The remaining modules, the workshops, your progress tracking and notes are included with Fellowship membership.