Page 457 - How to Make Money in Stocks Trilogy

Picking the Best Market Themes, Sectors, and Industry Groups 327

that much of the investment community and Washington may not have
always handled as well.

The Importance of Following Industry Trends
If economic conditions in 1970 told you to look for an improvement in hous-
ing and a big upturn in building, what stocks would you have included in
your definition of the building sector? If you had acquired a list of them,
you’d have found that there were hundreds of companies in that sector at
the time. So how would you narrow down your choices to the stocks that
were performing best? The answer: look at them from the industry group
and subgroup levels.
There were actually 10 industry groups within the building sector for
investors to consider during the 1971 bull market. That meant there were
10 different ways you could have played the building boom. Many institu-
tional investors bought stocks ranging from lumber producer Georgia
Pacific to wallboard leader U.S. Gypsum to building-products giant Arm-
strong Corp. You could have also gone with Masco in the plumbing group, a
home builder like Kaufman & Broad, building-material retailers and whole-
salers like Standard Brands Paint and Scotty’s Home Builders, or mortgage
insurers like MGIC. Then there were manufacturers of mobile homes and
other low-cost housing, suppliers of air-conditioning systems, and makers
and sellers of furniture and carpets.
Do you know where the traditional building stocks were during 1971?
They spent the year in the bottom half of all industry groups, while the
newer building-related subgroups more than tripled!
The mobile home group crossed into the top 100 industry groups on
August 14, 1970, and stayed there until February 12, 1971. The group
returned to the top 100 on May 14, 1971, and then fell into the bottom half
again later the following year, on July 28, 1972. In the prior cycle, mobile
homes were in the top 100 groups in December 1967 and dropped to the
bottom half only in the next bear market.
The price advances of mobile home stocks during these positive periods
were spellbinding. Redman Industries zoomed from a split-adjusted $6 to
$56, and Skyline moved from $24 to what equaled $378 on a presplit basis.
These are the kind of stocks that charts can help you spot if you learn to read
charts and do your homework. We study the historical model of all these
past great leaders and learn from them.
From 1978 to 1981, the computer industry was one of the leading sectors.
However, many money managers at that time thought of the industry as con-
sisting only of IBM, Burroughs, Sperry Rand, Control Data, and the like. But