Read on:
Phil,
I heard you speak in Birmingham and saw this as an opportunity to learn about making money in the stock market. My father dabbled in it for years but always seemed to lose money so I stayed away until reaching the age of 52. Thanks for the help on your Blog. They are helpful and interesting too.
Now my question. How much does the industry the company is in play a part on whether you purchase it. I've been doing some research on Infosys Tech and noticed it scored in the lowest industry of the InvestTool system. According to their seminar that would eliminated them from consideration.
Thanks in advance for your help.
Schwaaz
How important is the industry that the business is in?
Good question. You've heard the saying "The trend is your friend.". The real meaning of that is that a business in an industry will have a hard time moving up in price if the industry is moving down in price.
It's one of those truisms that seems overly simplistic, but it tends to be true much more often than not. Here's why: The price of all stocks is controlled by Institutional fund managers. Any one of them can change the price of most any stock just by selling off what they own all at once. What that means is that liquidity -- the ability to get out or in without changing the price -- is very hard to come by if you are a fund manager.
To get the ability to get in and out in a reasonable amount of time (and I'm talking weeks here, not days or hours or minutes), most fund managers resort to buying smaller pieces of many more stocks. One way to do that and still not become the entire market is to buy several stocks in one industry group. If you like Whole Foods, you might also buy Wild Oats and Safeway. If you like Exxon, you might also by Chevron and Halliburton.
The point is that the big guys tend to spread their investments out across several stocks within an industry group to get more liquidity than they might have if they just bought the best of breed stock in that industry. Since whatever they buy goes up a bit on their buying and whatever they sell goes down a bit on their selling, if they decide to get out of the grocery stocks they own, they can drive down the entire industry.
For that reason it pays to pay attention to what's going on with the industry group.
On Investools you can see the ranking of every group. While I'm not so concerned with the number that the group gets, I do want to see the industry group moving up... that the numbers are getting bigger by the week. Simple.
On Yahoo Finance , go to Industries, select one ["Restaurants" in this example]...
and select the chart.
Then click on Technical Analysis in the sidebar.
Select the 10 day and 50 day MA, the MACD and the Slow Stochastic.
Look at the tools and see if they are telling you to get in or out or stay put.
Use the tools just like you would a regular stock. This is a decent way to see if the money flow is moving into that group if you don't have Investools.
How critical is it? It's one more indication that something good is happening. Not to be ignored, but there is no one thing that tells us to get in or out. Use it as another major indicator.
Now go play.
