Selecting the Right Industry Group
There is something to be said about investing in the right industry. When you are investing, you want to make sure that you are in an industry group that is leading the market. Similar stocks within a group tend to move together. If you take a look at the stocks within the Metal-Ores group (e.g. CCJ, BBL, VALE, CLF, RTP, FCX), the majority of the patterns you see will be similar. This group peaked in late 2007 or early 2008 and then they all plunged into the October or March lows. Since that time, some have risen faster than others but again they are all moving with each other. This is how stocks in the same industry group tend to move. Your job is to try to find out the leading industry groups, and then pick the leading stock within that group. How do you find the leading industry group? No one is going to tell you prior which group is going to lead the market higher before it happens. This is where your own homework comes in. You’ve got to read up on industries. Go to financial websites and read the articles. You will start to get a feel of which industries are hot at the moment. Typically, when the mainstream media starts hyping up an industry the party is usually over. But that isn’t always the case. You have to ask yourself if that particular industry group’s success can continue. Is it a sustainable growth period? Is the industry experiencing secular growth or cyclical growth? Is the industry ascending or descending as a percentage of the economy? These are all ways to find the hot industry group. I am now going to plug Investor’s Business Daily because I think it’s a great business source of information for individual investor/traders. They have a section within the newspaper that tells you which industry group is leading the market every day. So, they do the homework for you. You can spend your time investigating leading industries rather than trying to find out the leading industries.