Insider Hint: Investing in Industry

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Investing in industries can be quite lucrative, but it is important to remember that with the changing times, some industry might become obsolete while others might be just beginning to grow.

For starters, how permanent is the industry? Is it one that will shortly go the way of the carriage-makers and the traction companies? It is certainly true that all kinds of industry do not continue indefinitely. The fact that our mode of living is in a state of continuous change is seldom recognized except, perhaps, by those older inhabitants who still talk about the "good old days." There are children today who have never seen a streetcar or ridden in a horse-drawn vehicle. Advances in technology, change in public living habits, change in law, change in foods and clothing—all these and many others simply draw attention to the fact that change is a basic feature of economic life. Protection for the investor lies in the careful selection of industries that are growing and not declining, dynamic and not static, coupled with the realization that a trend, which will make certain products and services obsolete must be continually born in mind.

A growing industry has numerous advantages because the very newness of it means that opportunities to develop new products and processes are large, that the opportunities for future gains are large, that the time of destructive competition has not yet arrived. Such examples as chemicals (including plastics and petrochemicals) , aviation, rubber, glass, and electronics are well known. In some instances, the discussion of such growth industries has resulted in an unusual demand for these securities, with accompanying higher prices; caution is indicated and implies that such purchases should be made with both present and future developments carefully weighed.

The stability of an industry is of considerable importance, since wide fluctuations in earnings and dividends will not make for a genial investment atmosphere. This is particularly true of the so-called "heavy industries," sometimes called "feast and famine" industries, whose sales and profits may at times be spectacular and at other times shrink to zero. Great care is needed here since the investor may well be blinded by current successes and become over-optimistic; studies of past behavior may prove instructive.

Geography plays a large part in selection; for example, it is important to realize that a single plant in one location will bring heavy shipping charges, while a number of plants, strategically located, will permit considerable savings in such charges. The chain food stores are a good example of this, since they serve a national market. Another important aspect of geography is the determination of population shifts, since the actual growth in population of one section of the country at a faster rate than elsewhere indicates a new and expanding market.

Government intervention is an important item. Certain food items, such as sugar and milk, are enveloped in government regulations; in some cases, as with some of the power companies, stiff competition has been met from nearby government or cooperative power projects. Any change in government attitude, with an accompanying change in government action, could be quite important to certain industries.

The attitude of labor toward certain industries deserves mention. Those industries should be sought where labor costs and the total amount of labor participation is small; in those cases where labor is involved to a greater extent, the general attitude of the union involved should be carefully appraised. In some cases, mechanization and automation are reducing the labor problems, which certain industries must meet.

All of these factors must be taken into consideration before investing a considerable amount in an industry. The thing to do these days might be to look at up-and-coming technologies that could one day replace aging and polluting industries -- those involved in innovation and sustainability are gaining popularity in the marketplace.

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