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A Look at Comparative Evaluations of Industry Groups

How can we, as small investors, figure out the proper price-earnings ratios for stocks in which we are interested? To begin with, we should know something about the comparative status of various stock groups or industry classifications. If, for instance, you know that chemical stocks are generally given multipliers of 20 to 30, then the first step is to determine the status of the company in question as a basis for allotting it a place between the lower limit of 20 and the upper limit of 30. Or, for another in-stance, if aircraft stocks are generally accorded 10 to 17 times earnings, then securities of this classification should be evaluated accordingly, unless some exceptionally well-situated issues should deserve higher multipliers due, say, to their heavy engagement in electronics or outer-space exploration.

Should You Sell on Good News?

To wait for a little confirmation through increased price and volume in a stock is one thing; to wait final confirmation in the form of news announcement is quite another.

You are more likely to lose money if you insist on not buying until good news is officially confirmed. That’s why the Wall Street adage says “Sell on good news.”
Why do professionals sell on good news? Because, in the words of William A. Doyle of the highly popular The Daily Investor, “many other people (mostly non-professional) will jump in to buy the stock on the good news and they will sell out at a good price.”
“Also,” continues Mr. Doyle, “good news often leaks out and gets around before it is formally announced. If the people who have advance knowledge of the news do a lot of buying, that will often send the price of the stock up. Then, if they and others sell when the good news is official, the price of the stock may dip.”

How to Cash in on Short-Term Swings

The market is not a one-way affair. This is true not only of the market as a whole, but of individual issues. That is not to say that what goes up will inevitably go down; quite a few stocks have registered one new high after another without much interruption.
For the overwhelming majority of stocks, however, the opportunities provided by market swings are too frequent to pass up. The difference between the high and the low even in short-term swings often equals or exceeds a year’s growth.
The opportunities are even greater if you know how to capital-in on what I call “market disorder,” which is created by unusually sharp setbacks. When the market suffers a series of severe reversals, as when it breaks through a psychologically important support zone like the 600, as measured by Dow-Jones Industrial Average, people often get panicky and sell indiscriminately. This creates excellent opportunities to buy favored issues or switch into them from issues you want to get rid of. Though it may entail a small loss, plus brokers’ commissions, good stocks bounce back fast during a market rally which would more than cover the loss suffered in the wrong situation.