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Written by and copyright © 2005-2010 by Thomas N. Bulkowski. All rights reserved.
How important are market
and industry trends in influencing the behavior of your stock? Many people have
asked that question, and this page provides
at least part of the answer.
This is from the book, Investment Analysis and Management, by Stanley
Huang, published in 1981 by Winthrop Publishers, Inc.
Here are the results from
research on the influence of several factors on stock price changes.
| Influencing Factor | Percentage |
| Economy-wide | 30% to 35% |
| Company | 30% to 35% |
| Industry | 15% to 20% |
| Other | 15% to 20% |
Huang cites a study done
by Richard A. Brealey in An Introduction to
Risk & Return from Common Stocks,
published by M.I.T. Press in 1969. I averaged the results of the 63 stocks in 6
industries that he shows, covering the period
from 1952 to 1960. Here’s what I found.
| Influencing Factor | Percentage | Min/Max |
| General market | 31% | 1%/66% |
| Company (stock) | 20% | 6%/42% |
| Industry | 12% | 0%/24% |
| Other | 37% | 13%/72% |
Although the results are
decades old, they do provide some idea of how important it is to consider the
market and industry trends when trading stocks.
The first category, general market, is an influence that affects all stocks. The
company (stock) influences are factors that
pertain to one stock. An industry influence is one that affects all stocks in the
same industry. The ‘other’ category
includes a variety of influences that are not industry specific.
Notice how important
the general market is to the price fluctuation of common stocks – 31%. Think
of this as the importance of general economic
conditions to stock behavior. What surprises me are the low 12% attributed to
industry specific influences and 20% for stock
(company specific) influences.
-- Thomas Bulkowski
Copyright © 2005-2010 by Thomas N. Bulkowski. All rights reserved. Cannibal: A guy who goes into a restaurant and orders the waiter.
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