Gross domestic product (GDP) is the total value of goods and services produced in a country during a year.

GDP is often referred to as the economic report card of a country. The level of GDP reveals information about the size of an economy, while the change in GDP from one period to another period indicates whether the economy is expanding or contracting.

The monetary value associated with gross domestic product can also be used as a measure of the importance of a country’s stock markets. It’s used to show the cumulative economic performance of a country and is used for global comparisons.

For example, the Market Vectors Africa Index ETF, symbol AFK on New York, aims to match the performance of the Market Vectors GDP Africa Index. This index tracks the performance of the largest and most liquid companies in Africa. A country’s weighting in the index is determined by the size of its gross domestic product.

Gross domestic product was coined as a term in mid to late 1600s when William Petty created the basic concept of GDP for defending landlords from unfair taxation during wartime.

Overall, gross domestic product can be determined in three ways and each method should provide the same result. These approaches are the production approach (including value added or output), the expenditure approach, and the income approach.

In some countries, a significant portion of their gross domestic product is concentrated in one sector—for example, resources in Canada, including mining.

At TSI Network, we recommend using our three-part Successful Investor philosophy:

1. Invest mainly in well-established companies;
2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
3. Downplay or avoid stocks in the broker/media limelight.

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