Page 467 - How to Make Money in Stocks Trilogy

Picking the Best Market Themes, Sectors, and Industry Groups 337

important stock in the same group. You can get away without such confir-
mation in a few cases where the company does something truly unique, but
these situations are very few in number. From the late 1980s to the late
1990s, Walt Disney fell into this category: a unique high-quality entertain-
ment company rather than just another filmmaker in the notoriously
unsteady, less-reliable movie group.
Two other valuable concepts turned up as we built historical models in
the stock market. The first we named the “follow-on effect,” and the second,
the “cousin stock theory.”

The “Follow-On Effect”

Sometimes, a major development takes place in one industry and related
industries later reap follow-on benefits. For example, in the late 1960s, the
airline industry underwent a renaissance with the introduction of jet air-
planes, causing airline stocks to soar. A few years later, the increase in air
travel spilled over to the hotel industry, which was more than happy to
expand to meet the rising number of travelers. Beginning in 1967, hotel
stocks enjoyed a tremendous run. Loews and Hilton were especially big
winners. The follow-on effect, in this case, was that increased air travel cre-
ated a shortage of hotel space.
When the price of oil rose in the late 1970s, oil companies began drilling
like mad to supply the suddenly pricey commodity. As a result, higher oil
prices fueled a surge not only in oil stocks in 1979, but also in the stocks of
oil service companies that supplied the industry with exploration equipment
and services.
The roaring success of small- and medium-sized computer manufactur-
ers during the 1978–1981 bull market created follow-on demand for com-
puter services, software, and peripheral products in the market resurgence
of late 1982. As the Internet took off in the mid-1990s, people discovered an
insatiable demand for faster access and greater bandwidth. Soon network-
ing stocks surged, with companies specializing in fiber optics enjoying mas-
sive gains in their share prices.

The “Cousin Stock” Theory
If a group is doing exceptionally well, there may be a supplier company, a
“cousin stock,” that’s also benefiting. As airline demand grew in the mid-
1960s, Boeing was selling a lot of new jets. Every new Boeing jet was outfit-
ted with chemical toilets made by a company called Monogram Industries.
With earnings growth of 200%, Monogram stock had a 1,000% advance.