How To Choose The Best Stock Market Picks

The Nicholas Darvas stock Market Picks Success Story (part 15)

From my reading I knew that stock market picks - like herds, indeed - form groups according to the industry they represent and that stock market picks belonging to the same industry have the tendency to move together in the market, either up or down.

It seemed only logical to me that I should try to find through fundamental analysis:
a) the strongest industry group;
b) the strongest company within that industry group.
Then I should buy the stock market picks of that company and hold on to it, for such an ideal stock must rise.

I started studying the personality of stock market picks in relation to its industry group. When I read the quotations of GENERAL MOTORS I automatically looked at those of CHRYSLER, STUDEBAKER and AMERICAN MOTORS. If I looked at KAISER ALUMINUM, my eye automatically glanced afterwards at REYNOLDS METALS, ALCOA, and ALUMINIUM LTD. Instead of reading the stock tables in A . . B . . C . . order, I always read them in industry groups.

Whenever my stock market picks started to behave better than the market generally I immediately looked at the behavior of their brothers - stock market picks of the same industry group. If I found that its brothers also behaved well, I looked for the head of the family - stock market picks that were acting best, the leader. I figured if I could not make money with the leader, I would certainly not make money with the others.

How delighted and important I felt doing all this! This serious, scientific approach made me feel like a soon-graduating expert in finance. Besides, I felt this was more than mere theory. I was going to put all this into practice and make a lot of money.

I started by compiling earnings of whole industry groups like oils, motors, aircraft, steel. I compared their past earnings with their present earnings. Then I compared these earnings with the earnings of other industry groups. I carefully evaluated their profit margins, their price-earnings ratios, their capitalization’s.

Finally, after a tremendous amount of sifting and concentrating, I decided that the steel industry was the vehicle that would make me rich.

Having made this decision, I then examined the industry in the minutest detail. Once again I delved into my rating service.

I was determined to play safe, so I figured the stock market picks to buy should be in the "A" range and should pay a high dividend. But I received a surprise. As I went into this I discovered that "A" ratings were extremely rare and were almost always for preferred stock market picks. They were relatively stable price-wise and rarely rose spectacularly. Obviously these were not for me. 

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