Page 453 - How to Make Money in Stocks Trilogy

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• C HAP T E R •

Picking the Best Market Themes,

Sectors, and Industry Groups

The majority of the leading stocks are usually in leading industries. Studies show
that 37% of a stock’s price movement is directly tied to the performance of
the industry group the stock is in. Another 12% is due to strength in its over-
all sector. Therefore, roughly half of a stock’s move is driven by the strength
of its respective group. Because specific industry groups lead each market
cycle, you can see how worthwhile it is to consider a stock’s industry before
making a purchase.
For the purposes of this discussion, there are three terms we will use: sec-
tor, industry group, and subgroup. A sector is a broad grouping of compa-
nies and industries. These include, for example, basic industries (or
“cyclicals”), consumer goods and services, transportation, finance, and high
technology. An industry group is a smaller, more specific grouping of com-
panies; there normally are several industry groups within a sector. A sub-
group is even more specific, dividing the industry group into several very
precise subcategories.
For example, if we were to look at Viacom, it could be described as fol-
lows: Sector: Leisure and Entertainment Industry; Group: Media; and Sub-
group: Radio/TV. For clarity and ease of use, industry group and subgroup
names are generally combined, with the result simply being called “industry
groups.” For example, the industry group for Viacom is known as “Media—
Radio/TV.”

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