ABSTRACT
Selection of stocks to chart: continued In choosing your stocks, you will probably look for the greatest diversity in the kind of industry. Because you are not specializing in the detailed study of a single group, you will try to get stocks from as many different groups as possible. You will want to include mines and oils, rails and chemicals, liquors and amusements, airlines, utilities, techs, Internets, biotechs, ad infinitum. The reason for this is simply that, very often, many stocks in a particular industrial group will show the same or similar patterns, as the entire industry is affected by certain Major conditions. You will often nd, for instance, that when Allis-Chalmers (EN: or Dell) makes a Triangle or other Area Pattern, followed by a sharp upward move, Deere (EN: or Compaq), Minneapolis-Moline, Harvester, and Case will make similar Triangles, or possibly Rectangles or some other Consolidation Pattern, followed by a similar upward move. When Schenley is moving in a long downtrend, you will very likely nd that Distillers-Seagrams, National Distillers, Publicker, and American Distilling-are also moving in a long downtrend. (EN: Metaphorical names, like the names of Greek gods. Or Ulysses and Leopold Bloom. The present-day reader may read Intel, Fairchild, and National Semiconductor or 3COM. The idea is the same.) (For an illustration in this chapter, see Figure 22.1.)
Therefore, unless you plan to keep enough charts to include several stocks of each important group, it is best to pick your stocks to make up as widely diversied a list as possible. In this way, during times when certain groups are moving indecisively, or are inactive, you will have some representation in other groups that may be active. (Do not infer from this that all stocks of a group move together at all times. Individual concerns will frequently move according to special inuences that bear on a single company. But where the Major inuence is some industry-wide condition, the group will move more or less as a unit.)
We, therefore, choose stocks representing a wide variety of groups or basic industries. But, suppose we are limited as to the number of charts, and we must choose one stock from a group; which stock to choose? Suppose, for instance, we must choose one stock from the transportation group. (EN: Or Biotech, or Internets.) As a matter of fact, you would probably want more than one because this particular group is so important and so large. But for the moment, let us choose just one. (EN9: Or, even better, why not one of the indexes-for example, an ETF-for the desired group. An example of betting on all the horses rather than trying to pick the winner, and there is no conflict between making both bets.)
Should it be a high-priced stock or a low-priced stock? Let us examine that point rst. If you examine the past records of stocks, you will nd that, in general, the lower priced
issues make much larger percentage moves than the higher priced stocks. It is not unusual for a stock selling around 5 to make a rise of 100%, moving up to 10 sometimes within a few weeks. On the other hand, you do not nd 100% moves in days or weeks among the stocks selling at 100 or 200. The same industry-wide move that carries your $5.00 stock from 5 to 10 might carry your $100 stock from 100 to 140. Obviously, if you had put $1,000 into outright purchase of the stock at 5, the move would have increased the value of your stock 100% or $1,000. In the other case, if you had put the same amount into a stock at 100,
the move to 140 (although many more points) would have increased your capital to only $1,400. The gain in the lower priced stock would be about two and one-half times as great.
