Page 469 - How to Make Money in Stocks Trilogy

Picking the Best Market Themes, Sectors, and Industry Groups 339

It also pays to understand the basic nature of key industries. For example,
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high-tech stocks are 2 ⁄2 times as volatile as consumer stocks, so if you don’t
buy them right, you can suffer larger losses. Or if you concentrate most of
your portfolio in them, they could all come down at the same time. So, be
aware of your risk exposure if you get overconcentrated in the volatile high-
tech sector or any other possibly risky area.

Sometimes Defensive Groups May Flash General Market Clues

It’s also important for investors to know which groups are “defensive” in
nature. If, after a couple of bull market years, you see buying in groups such
as gold, silver, tobacco, food, grocery, and electric and telephone utilities,
you may be approaching a top. Prolonged weakness in the utility average
could also be signaling higher interest rates and a bear market ahead.
The gold group moved into the top half of all 197 industries on February
22, 1973. Anyone who was ferreting out such information at that time got
the first crystal-clear warning of one of the worst market upheavals up to
that point since 1929.

60% or More of Big Winners Are Part of Group Moves
Of the most successful stocks from 1953 through 1993, nearly two out of
three were part of group advances. So remember, the importance of staying
on top of your research and being aware of new group movements cannot
be overestimated.