Finding The Right Industry To Invest In
( Originally Published 1939 )
WHETHER one is investing for income, or for quick profits, the selection of the industry is of considerable importance. The field is wide and varied, and while certain yardsticks are available as to past performances, such yardsticks are not always desirable to use.
For instance, the field of industry which afforded fortunes in the past, may have reached its peak or saturation point, and while still a safe investment, offers little opportunity for growth.
To determine whether the particular industry, which is being considered for investment, is growing, declining, or is at a stand-still, is a problem which should not be skipped over hastily. For irrespective of how good the management of a company may be, and irrespective of what its balance sheet may show, if the industry in which the company operates is on the decline, then its future may be problematical. No company can successfully fight an economic evolution.
In carefully considering the industrial fields to enter, whether it be tobacco, rubber, chemical, automobile, steel, oils or others, many factors are to be considered, but foremost, it should be borne in mind that many industries are interdependent upon each other.
The relation that these industries bear to each other, is often essential in determining which have reached the saturation point, which have slowed down due to seasonable requirements, and which are at the point of beginning.
For example, the demand for beef may noticeably increase. The slaughtering of large quantities of cattle means that a larger quantity of hides will appear on the market, and possibly cheaper prices for leather may be the result. How will this affect the production of shoes, in some shoe factory you might be considering, especially if the factory is a marginal producer? Will cheaper leather tend to increase their production and sales, or will it slow down production and sales?
Again, take the automobile industry. It uses about seventy per cent of the alloy steel, eighty-five percent of the gasoline, eighty percent of the rubber, fifty percent of the plate glass, about thirty percent of the lead and nickle, and possibly fifty percent of the upholstered leather, used in domestic consumption.
It is obvious, therefore, that a complete shutdown of the auto-mobile industry would also paralyze the industries which are inter-dependent, or allied with it. By the same token, a rise in the production and consumption of cars would tend to make corresponding demands upon the many allied fields of industries from which they draw.
Hence, the first step the investor should take, as he approaches the stock market, is to determine slowly and carefully the industry which contains the most promise. Its past and present should be carefully weighed and considered, but more especially, its probable future. It is upon the future that the investor has to rely for earnings and appreciation of his investment.
CLASSIFICATION OF INDUSTRIES