Rule #1 Finance Blog

With Investor Phil Town


Read on:


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.


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

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.