Markets VS companies

[$hunter]

Guys one of my stratagies Via TA, is find when a market is about to turn (Say up) then i look at the sectors looking to turn and then finally companies..........

Is this good to follow or should i treat all companies as individuals...?

cos.. eg ftse is looking bearish i find a few company's looking bullish what should i do or what should i look for????

 

[jmreeve]

If it makes money it is a good strategy.
Otherwise it is a bad one.

 

[Glenn]

"When the tide goes out in the harbour, the good ships go down along with the bad." .. and vice versa.

~70-80% of the risk in a stock is actually in the Market and Sector, not the stock itself.
If you watch the market and sector, then you will be watching the majority, which gives you more choice and more likelihood of picking a good one.
If you try to buck the trend then you will have many fewer candidates to pick from .
Follow the tide.
Glenn

 

[$hunter]

"When the tide goes out in the harbour, the good ships go down along with the bad." .. and vice versa.

~70-80% of the risk in a stock is actually in the Market and Sector, not the stock itself.
If you watch the market and sector, then you will be watching the majority, which gives you more choice and more likelihood of picking a good one.
If you try to buck the trend then you will have many fewer candidates to pick from .
Follow the tide.
Glenn

I'm gonner follow YU!

 

[Rhody Trader]

You definitely benefit from trading in the same direction as the overall market motion. It tends to help push along an already bullish stock. If your strategy is a top down one in which you determine market direction, then look for stocks making a similar move you can have good success.

That said, it might be worth looking at Betas. I'm not a huge proponent of their use, at least in the way academics would suggest, but they can give you an idea of what to expect. A high Beta stock will tend to move in the same direction as the market, potentially even more aggressively. A low Beta stock will tend to lag, or even move the other way.

 

[Airthrey Capital]

~70-80% of the risk in a stock is actually in the Market and Sector, not the stock itself.
Glenn

According to efficient portfolio theory, Stock specific risk is far greater than Market risk.

 

[Rhody Trader]

According to efficient portfolio theory, Stock specific risk is far greater than Market risk.

I think you're confusing the Efficient Market Hypothesis and Modern Portfolio Theory, but the point you make is correct. The reason for the portfolio is to reduce the risks associated with a single stock exposure.

 

[Airthrey Capital]

I think you're confusing the Efficient Market Hypothesis and Modern Portfolio Theory, but the point you make is correct. The reason for the portfolio is to reduce the risks associated with a single stock exposure.

RT,

You are quite right. It is Modern Portfolio Theory that I am referring to.

 

[Glenn]

Provided a portfolio covers a number of different markets which have little or no interdependancy, and therefore have different 'tides', then the risk to it will be reduced.
Likewise, within an equity market, safer sectors such as Utilities will fare better in overall bearish conditions because in general their tides are opposite to the prevailing conditions - a raw example of Sector rotation.
Glenn