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Investments: Analysis and Management, 12th Edition by Charles P. Jones

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chapter 14

Sector/Industry Analysis

As you prepare to invest your inheritance, you are reminded that you have read about the telecom boom and bust of the late 1990s, the strong performance of the energy sector in 2007–2008 (and possibly for years to come), the outstanding performance of stocks such as Apple, Amazon, and Google in recent years, and so forth. Therefore, it seems obvious to you that you should consider some basic information about sectors and industries that are likely to be important in future years. You already understand you must think ahead when you invest. Yesterday's performers may very well not be tomorrow's performers. You will quickly realize that you cannot become proficient in understanding how to analyze sectors and industries unless you devote a lot of time to the task, but it does seem reasonable that a small effort in this area will pay off. And indeed, it will!

Suppose in late 2011 you were ready to invest some of your money for the year ahead. Two sectors, railroads and biotechnology, have been suggested to you by different people as possibilities for good performance over the next year. Which do you think is likely to perform better? This does not seem like a difficult choice because railroads are so 19th- and 20th-century, and biotechnology is important in the 21st century.

According to an issue of The Value Line Investment Survey at that time, which ranks industries as to likely performance over the next year, railroads ranked close to the top ...

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