Hello Fellow Bullhunters
Today I will take another excerpt from the eBook The Bullhunters Guide to the US Stock Market and discuss with you one of the averages that makes up part of the DJIA. In general the Dow 30 stocks can be broken down into the five groups: Industrials, financials, cyclicals, consumer non-cyclicals and technology. The Industrials is what we are looking at today.
DJIA Industrials
Although the idea of Dow Jones Industrial Average industrials may seem redundant, the fact is that the term industrial average is a bit outdated. Long ago Charles Dow created several averages to simplify market watching. At the time, it was the Dow Jones Transportation Average that mattered most – this is the age when railroads ruled. Over time the importance of manufacturing has lessened so instead of allowing the DJIA to become obsolete the Dow Jones company (which owns The Wall Street Journal, Barron’s and SmartMoney magazine) decided to make it more inclusive.
General Motors (GM) is the industrial of all industrials. It used to be said As GM goes, so goes the United States. Well fortunately for the USA that is no longer the case. Generally industrials do well when the economy is good and do poorly when the economy is bad. This makes them cyclical stocks. But GM’s problems are of a more secular nature meaning they are not entirely related to the business cycle. As the largest corporation in the world for several generations, GM grew arrogant. It made cars that nobody wanted to drive and made promises to its workers that were financially unsustainable. Once unthinkable the very existence of GM into the future is in doubt and its credit rating has been lowered to junk status.
Stock Market Insight
In reading this little piece of the eBook, we can form an opinion of the Industrials. Being that they are clycical stocks these companies do best when the economy is in the early stages of the business cycle. Most companies are cyclical. But GM’s problems as we see here were drawn out over a longer time-frame making it a secular trend rather than a business cycle. The five stages of the business cycle are growth, peak, recession, bottom (or trough), and recovery. They are predictable cycles of economic activity that repeat over time.
I don’t know about you but the more I read the more I learn. Every time I go over a section of the eBook I pick up something new. It’s like that with anything that you study. You may hear or read the same thing over and over again until one day the penny drops and you retain some more information. If you haven’t yet downloaded your very own copy, please do so now so that you can read it at your own leisure and revise it in here with me.
Stick with me on this as I know that if I am learning you certainly are too. It’s all good. By the time you are ready to trade on the US Stock Market you will have plenty of background into how it works.
Yours in prosperity
Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 – 2007
{ 2 comments… read them below or add one }
Hi Ange,
Wow! You wrote this in July 2007 and less than 2 years later GM has to be saved from going under by President Obama and the American people. I find it amazing that people who understand the stock market knew what was happening with GM and yet no-one intervened sooner.
Also, I really like that there are five stages of a business cycle and that these will be repeated over time. So, I’m guessing there are ways to work our where a company is in this cycle? Maybe through fundamental and technical analysis?
The cyclic nature of events in the world is always intriguing and as we have had a good 100 years now to plot, analyse and record these statistics, we are starting to see multiples of cycles that can be pinpointed in accuracy.
If you ever get the chance to read anything of Harry.S.Dent Jr, he is a master at demographics and his findings are not mere theories, they are based on statistical fact and evidence. His latest book worth ’studying’ is “The Great Depression Ahead”.