CHAPTER 15Picking the Best Market Themes, Sectors, and Industry Groups

The majority of the leading stocks are usually in leading industries. Studies show that 37% of a stock’s price movement is directly tied to the performance of the industry group the stock is in. Another 12% is due to strength in its overall sector. Therefore, roughly half of a stock’s move is driven by the strength of its respective group. Because specific industry groups lead each market cycle, you can see how worthwhile it is to consider a stock’s industry before making a purchase.

For the purposes of this discussion, there are three terms we will use: sector, industry group, and subgroup. A sector is a broad grouping of companies and industries. These include, for example, ...

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