Chapter 15 Summary and Analysis

In a poor economy, fund managers often turn to cyclicals. Cyclicals are companies which typically follow a pattern of boom to recession and then back again. Common cyclical industries are: aluminum, steel, paper, automobiles, chemicals and airlines. Wall Street seemed to be anticipating the return of cyclicals earlier and earlier, making it that much more difficult to successfully invest in them. While a low P/E ratio is regarded as good with most stocks, such is not the case with cyclicals. When they are very low, a cyclical is usually at the end of a favorable period. Inexperienced investors will stick with the company because business is good and earnings are high. This, however, will soon change. Smart investors will sell. The price of the stock falls quickly once the selling begins. Never buy a cyclical after several years of record...