What is “secular”?
Secular is a descriptive term used to refer to a market activity that occurs over the long term. Secular can also be used for some stocks that are not affected by short-term trends. Secular trends are not considered to be seasonal or cyclical; instead, they remain unchanged over time, whereas secular stocks maintain a certain trajectory, regardless of current economic trends.
Breaking down the “secular”
Secular trends and secular promotion are those that are expected to remain to move in the same direction over a long period of time. Clean energy movement was seen as a new secular trend and is expected to remain relevant for the foreseeable future. The market shares of technology companies such as Netflix Inc. and Google are considered to be secular because short-term economic trends have a minimal impact on their long-term performance.
The secular movement Can go in a positive or negative direction; thus, the term is not necessarily associated with growth. In addition, the secular can refer to a subtle or dramatic movements as the degree of change is not defined by the term. The defining characteristics are the long-term nature of the movement and the lack of impact of short-term trends in the associated activity.
It is important for investors to identify secular trends in markets, not just short-term trends to develop a long-term investment strategy. Examples of secular trends as an aging population (which tend to have different spending and saving than younger populations), the expansion of a particular technology (e.g., Internet) and strong dependence on some products (such as oil). While they are considered long-term, secular trends are not constant.
The stock is secular, if the relevant income of the company remain the same regardless of other trends occurring in the market. The company is often considered secular where the main business is consumer goods or goods, which are used in most households. Staples customer may include personal hygiene items such as shampoo and toilet paper, and various food manufacturers, and certain pharmaceutical companies.
Shares in the long term
In his book “the stock market in the long run”, Jeremy Siegel, economist, doctor and Professor of Finance the Wharton school, University of Pennsylvania, argues that stocks (especially U.S. stocks) are likely to outperform other major asset classes on a secular basis and in the long term. His argument, he reinforces the fact that between 1871 and 2001, during any rolling 30-year period (a period long enough to be considered secular), stocks outpacing all other asset classes, in particular bonds and t-bills.