May 19th, 2008
In a response to a reader’s question about the Transportation-Trucking Industry Group, I repeated one of my favorite stock market quotations:
“50% of a stock’s price movement can be attributed to the overall movement in the market, 30% to the movement in its sector and only 20% on its own.”
I searched looking for its origin and finally tracked it down to Prof. Benjamin F. King of the University of Chicago back in the 1960’s, just about the time that the Efficient Market Theorem was being published (you’ll have to read my book when it comes out at the end of the summer to learn more).
There couldn’t be a better current example of this quotation at work today than the stocks in the Trucking Industry Group. Seeing all these charts side by side sends my heart racing. Many of their charts look like they were cut with a cookie cutter; if they were on printed on transparent paper they’d overlay almost perfectly. And I’m not talking here about a week, a month or a year; this is a multi-year picture. With the limitations of a blog, you’ll just have to pop these charts by clicking on the symbols and look at them side by side:
- CNW (Con-Way)
- FFEX (Frozen Food Express)
- FWRD (Forward Air)
- KNX (Knight)
- MRTN (Marten)
- ODFL (Old Dominion)
- WERN (Werner)
There are two exceptions to these patterns: a couple of stocks that have bucked the trend and had continued to move up, ever so slightly, and those that fell precipitously and have a long way to climb back. Coincidentally, I was asked for my opinion about YRCW on April 20 (perhaps the same reader asked again, more generally, about Truckers). I answered then:
“I wouldn’t touch YRCW with a 10-ft. pole. It is the proverbial falling knife. There may be a chance you could pick up a bounce but then again, it may sink further. Why take that chance.
If it does start moving up it has to fight the headwind of all those people who bought at higher prices all the way down and see an opportunity to finally get out with a smaller loss than they expected. saw may better opportunities.”
If that reader had ignored my response, they would have enjoyed seeing YRCW rise from 14.70 on the previous close to 19.53 as of 11:00 today. But I would still buy one of the above stocks before YRCW because of the lower degree of risk I see in their charts.
Bottom line? One of these days, the talking heads on CNBC will be touting truckers because the economy will be in recovery and thriving again, because the weight of gas and diesel will be lessened. They’ll want you to believe that this is their discovery, their expertise, their special knowledge (or else why would they be making the big bucks). But, in truth, it’s something that anyone could have discovered by looking at the charts.
The challenge is not finding what to buy – that’s the easy part. The tough part is: 1) knowing when to buy something and 2) knowing what not to buy (or if you made a mistake, cutting your losses quickly). So wait until you see a trigger event, until the stocks break through those upper boundaries. Let the first few percentages go for insurance sake.