Fisher Investments on Materials

The second installment of the Fisher Investments On series is a comprehensive guide to the Materials sector. Fisher Investments on Materials can benefit both new and seasoned investors, covering everything from Materials sector basics to specific industry insights to practical investing tactics, including common pitfalls to avoid.

The book will begin with a discussion of Fisher Investments’ investing philosophy as it applies to the Materials sector. Then, readers will be lead through a discussion of sector basics , what drives the industries, and develop a framework for individual security analysis. Finally, the book will look at industry fundamentals and discuss what investors can do to protect themselves in a down market.

For more information visit www. materials.fisherinvestments.com

Foreword ix

Preface xi

Acknowledgments xv

Part I Getting Started in Materials 1

Chapter 1 Materials Basics 3

Materials 101 4

Commodity Pricing Basics 9

The Production Process 13

Chapter 2 A Brief History of Materials 29

The Industrial Revolution 29

Structural Shifts in Metals Since the Industrial Revolution 33

Industrialization of the Emerging Markets 37

Chapter 3 Materials Sector Drivers 41

Key Drivers 42

Drivers at Work 46

Case Study: Copper 51

Part II Next Steps: Materials Details 63

Chapter 4 Materials Sector Breakdown 65

Global Industry Classification Standard (GICS) 66

Global Materials Benchmarks 67

Metals & Mining Industry 74

Chemicals 88

Construction Materials 96

Paper & Forest Products 96

Containers & Packaging 98

Chapter 5 Staying Current: Tracking Sector Fundamentals 101

What to Watch 102

Chapter 6 Case Study: The 2003 to 2007

Bull Market in Materials 117

The Backdrop 119

Demand Growth 120

Supply Constraints 130

The Growth of Mergers and Acquisitions 136

Part III Thinking Like a Portfolio Manager 139

Chapter 7 The Top-Down Method 141

Investing is a Science 141

The Top-Down Method 144

Top-Down Deconstructed 150

Managing Against a Materials Benchmark 157

Chapter 8 Security Analysis 163

Make Your Selection 164

A Five-Step Process 165

Important Questions to Ask 173

Chapter 9 Materialize Your Portfolio: Investing Strategies 181

Strategy 1: Adding Value at the Industry and Sub-industry Level 182

Strategy 2: Adding Value at the Security Level 189

Strategy 3: Adding Value in a Materials Sector Downturn 190

Strategy 4: Investing in Commodities 191

Appendix A: Materials Sector Resources 195

Appendix B: Top 10 Materials Firms by Industry 199

Notes 203

Glossary 217

About the Authors 223

Index 225

Fisher Investments is a respected investment management company which serves the needs of investors demanding superior performance, low fees and exceptional service.?With over $45 billion under management, its clients include Fortune 500 companies, foundations and endowments, as well as thousands of high net worth investors. Unlike many money management firms who typically have little contact with individual investors, Fisher Investments' Private Client Group was specifically created to allow?the investment management company to deliver institutional-level capabilities to high net worth individuals.

Brad W. Pyles (San Francisco, California) graduated from UCLA with a BA in Business Economics and a Minor in Mathematics. He regularly presents to audiences at investing seminars across the country and currently works as a Research Analyst at Fisher Investments with a focus on Materials and macroeconomic strategy.?Originally from Honolulu, he now lives in San Francisco with his wife. He has been with Fisher Investments since 2001.

Andrew S. Teufel (Woodside, CA) is Co-President and Director of Research at Fisher Investments. He has been with Fisher Investments since 1995 and has been a member of the Investment Policy Committee since 1996. He is responsible for the supervision of the firm's research department. Prior to joining the firm, he worked at Bear, Stearns & Co. Inc. as a Corporate Finance Analyst in its Global Technology Group.

• An in-depth look at the global Materials sector investment universe, including gold and other metals, chemicals, paper, cement, and more
• Tips and tools for security analysis and portfolio management
• A useful guide for investing in any market condition

FISHER INVESTMENTS^™ on MATERIALS

The Fisher Investments on series is designed to provide individual investors, aspiring investment professionals, and students the tools necessary to understand and analyze investment opportunities—primarily for investing in global stocks. Each guide is an easily accessible primer to economic sectors, regions, or other components of the global stock market. While this guide focuses on the Materials sector, the basic investment methodology is applicable for analyzing any global sector, regardless of the current macroeconomic environment.

Following a top-down approach to investing, Fisher Investments on Materials can help you make more informed decisions within today's dynamic Materials sector. It skillfully addresses how to determine the better times to invest in Materials stocks, and which materials industries and sub-industries have the potential to perform well in various environments. The global Materials sector is complex, covering multiple sub-industries and countries—each with unique characteristics. Using the framework found here, you can discover how to identify these differences, spot opportunities, and avoid major pitfalls.

Divided into three comprehensive parts—Getting Started, Materials Details, and Thinking Like a Portfolio Manager—Fisher Investments on Materials:

• Covers the entire Materials universe—from metals and mining to chemicals, construction materials, and paper
• Discusses Materials' main drivers—basic materials prices—and provides eight simple questions to help you form an educated opinion on Materials stocks
• Takes you through the fifteen sub-industries within the global Materials sector and reveals how they operate
• Addresses issues unique to Materials stocks—from the importance of emerging markets demand to the effects of supply shortages
• Delves into top-down investment methodology as well as individual security analysis
• Outlines a five-step process to help differentiate firms in this field—designed to help you identify ones with the greatest probability of outperforming

Filled with in-depth insights and expert advice, Fisher Investments on Materials provides a framework for understanding this sector and its industries, to help you make profitable investment decisions—now and in the future. With this book as your guide, you'll gain a global perspective of the Materials sector and discover strategies to help achieve your investing goals.