From Crossing Wall Street:
Investors often ask me a question that follows this pattern: "I think X industry is going to be very big in the future, so I want to invest in Y stock. What do you think?"
The X industry is usually something like biotech or green energy or perhaps biotech using green energy. In any event, this thought process towards investing is a mistake. First, X industry may in fact turn out to be a big winner in the future, but that doesn't mean Y will follow.
Embryonic industries are notoriously difficult sectors to invest. There's a great deal of innovation, prices are plunging, and anyone not in first is quickly left behind.
A century ago, if you thought automobiles were the wave of the future, you would have been correct. But, as Wikipedia notes, "there were over 1,800 automobile manufacturers in the United States from 1896 to 1930. Very few survived and only a few new ones were started after that period." Think on that.
The problem with top-down investing is that it misses that point that profits can be found anywhere. Profits are made wherever a good or service intersects with a need. It's just that simple; there's no magic formula. The trick isn't finding that special industry. Rather, it's finding that special stock.
Consider the stock of Donaldson ($DCI). What does Donaldson do? I'll let Hoovers explain...
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