19 · Industry Research
Before you understand a company, first understand the industry it operates in. Industry size, competitive landscape, position in the industry chain, and prosperity cycle together determine the ceiling of any individual stock — master the industry and stock analysis finally has an anchor. This chapter teaches you to build your own industry research framework.
What This Chapter Is For
The most common mistake retail investors make when researching stocks is studying the company without studying the industry: they run the financials through a full analysis while the industry has already entered decline; they see a company with a high gross margin but don't realize that a price hike upstream could punch straight through it at any time.
Industry research is the upstream step of company research. Industry size sets the ceiling for growth stocks, the competitive landscape decides whether the leader can hold its profits, position in the industry chain determines bargaining power, and the prosperity cycle points to where earnings inflect. Until these four questions are answered, every conclusion about a single stock hangs in mid-air.
The five articles in this chapter form a complete industry research pipeline: first master the methodology (01), then break down the value chain structure (02), then dig into the competitive landscape and economic moat (03), next judge sector prosperity and cycle position (04), and finally handle the most dangerous yet most seductive territory — new tracks and theme investing (05).
Article Guide
01 · Industry Research Methodology
A five-step framework for industry research: market size and growth, competitive landscape and concentration, industry chain position and bargaining power, business model and economics, and prosperity plus catalysts — five steps, and a full picture of the industry emerges. Also covers when to use top-down versus bottom-up approaches, classification conventions (SWS/CITIC/GICS), and four criteria for judging a "good industry" along with counterexamples.
02 · Value Chain Analysis
Split an industry into upstream, midstream, and downstream segments and see where the profit actually sits. The smile curve explains why design, branding, and chips earn so much more than assembly and contract manufacturing; the "sell shovels" logic explains why the steadiest business in a gold rush is selling shovels. Ends with a full hands-on walkthrough of the AI compute industry chain.
03 · Competitive Landscape & Economic Moats
Are the players in this industry shrinking in number? How do you compute and read CR3 and HHI? What should you invest in during each of the three competitive phases — free-for-all, oligopoly, and steady state? How do you identify the four types of economic moat (brand, switching costs, network effects, cost advantage), and why are "big scale" and "low prices" often fake moats?
04 · Sector Prosperity & Cycles
Cyclical industries earn money from supply-demand mismatches: how capacity cycles stack on inventory cycles, and how four signals — product price, inventory, capacity utilization, and capex — reveal where you are in the cycle. Why should you "buy cyclical stocks at losses and sell them at windfall profits"? Growth industries are judged by the penetration rate curve, where 10%-30% is the sweetest stage.
05 · New Tracks & Theme Investing
New tracks emerge from three forces — technology breakthroughs, policy pushes, and demand explosions. Theme investing runs through its full life cycle of "concept phase → fermentation phase → earnings delivery phase → falsification phase," and everything must eventually pass the earnings test. This article teaches you to spot fake tracks, read the rhythm of A-share policy themes, and participate in new tracks as safely as a retail investor can.
Recommended Reading Order
① Industry Research Methodology (set up the framework first)
↓
② Value Chain Analysis (split the industry into upstream/midstream/downstream and find the money)
↓
③ Competitive Landscape & Economic Moats (read the power relations among players)
↓
④ Sector Prosperity & Cycles (judge where the industry stands right now)
↓
⑤ New Tracks & Theme Investing (handle the hottest, most dangerous part)- ① is the master outline; ②③④ are three overlapping specialized lenses — order is flexible, but reading in sequence is recommended.
- ⑤ depends on the foundation of ①②③④: without an industry framework, theme investing is running naked.
- After finishing this chapter, continue with Chapter 04: Stocks (company financials and valuation) and Chapter 18: Financial Deep Dive (going deeper on individual stocks).
Conventions
- This chapter covers research methodology only. Companies, data, and prices in examples are illustrative fiction or historical cases, do not reflect current facts, and constitute no investment advice.
- Sections involving risk include a "⚠️ Risk Warning" box. No methodology, however complete, eliminates risk — it only lowers the odds of stepping on a mine.
- For industry data, defer to the latest disclosures from industry associations, national statistics bureaus, exchanges, and listed companies.