INDIVIDUAL STOCKS vs.
AVERAGES
For years the Dow-Jones Industrials Averages, Railroad Averages, and Public
Utility Averages have been a reliable guide to the trend of the market. Years ago
when there were a guide to the trend of industrial stocks. When Railroads were the
leaders and active, the 20 Railroad Averages were a good trend indicator. But, now,
since more that 1200 stocks are listed on the New York Exchange, the 20 Railroad
Averages and the 30 Industrial Averages are no longer representative or a guide to
the average trend of the entire market.
Various industrial throughout the country are affected by changing and are
also affected by varying conditions in foreign countries. One motor company may be
prospering and making money while another one is going into bankruptcy and out of
business. Cross-currents in the stock market, due to various influences, cause some
stocks to decline while others advance. There changed conditions began in 1928 and
1929, but have been more pronounced since stocks made low in July, 1932. Therefore
in order to make money trading in the stock market, you must study and apply rules
to individual stocks and not depend on Averages.
We do not have a universal bull market any more, when all stocks advance at
the same time. We have a mixed trend, the main trend being up on some stocks and
distinctly downward on others. The majority of stocks reached low levels in July,
1932, and started working higher. The Dow-Jones 30 Industrial made low in July,
1932. The 20 Railroad Averages made lows in June and July, 1932. In 1935, at the
time the Dow-Jones 30 Industrial Averages were up 80 points, the Public Utility
Averages reached a new low level. This was brought about by adverse legislation.
By studying and applying the rules to the individual stocks, you would have
founded that the Public Utility stocks showed downtrend while other stocks
advanced. A study of the chart of American Telephone & Telegraph, which held up
better than the other Public Utilities in 1935, revealed that is was in a stronger
position. One reason was that during the entire depression American Telephone and
Telegraph never passed its dividends and continued to pay $9 a share per year,
while other Public Utility stocks passed their dividends. During the boom, which
culminated in 1929, the Public Utility stocks had been watered; stock dividends had
been declared; there had been numerous splitups. The result was that no other
stocks had been more overbought than the Public Utilities.
You cannot detect the best stock to buy by following the averages of any
group of stocks. Some of the stocks in a group will make new highs every year in
bull market while others will make new lows in bull markets or go into receivership
or be taken off the Exchange. For example: In 1932 when the average of all airplane
stocks showed uptrend, if you had selected Curtiss Wright “A” as the best airplane
stock in this group to buy just because it had been a leather in a previous
campaign, you would have made a mistake. In August, 1932, Curtiss Wright “A” sold
as low as 1 1/24 in April, 1934, made a high of 12. Now compare Douglas Aircraft
and make a study of its position. In 1932 Douglas made a low of 51 in February,
1934 reached a high of 28 ½; in September, 1934 declined to 14 ½, a decline of
about 50% from the top. In July, 1935 when Curtiss Wright “A” was still selling 4
points under the 1934 high. Douglas crossed its 1934 top, which showed that it was
in a strong position and much better to buy, even at 28 ½, than Curtiss Wright “A.”
In December, 1935, Douglas crossed 45 ½, the 1929 high, and advanced to 58 while
Curtiss Wright “A” only advanced to 12 ¼. Curtiss Wright “A” never showed the
activity of power to advance as Douglas and some other airplane stocks. Douglas was
making higher bottom and higher tops right along while Curtiss Wright “A” was
moving in a narrow trading range, so Douglas was the stock in this group to buy.
This is proof that you must study each individual stock in a group in order to
detect its trend.
