You must analyze your stocks in terms of your goals, but you also have to consider dimensions of highs and lows. A stock may be high or low in relation to its own performance over a period of time, in relation to its category, or in relation to the market. Again, there are no absolutes to interpret for you the meaning of one position as against another. There are only possibilities to be judged.
A stock that is at its own yearly high must be judged for the possibility of going higher. It would quite possibly be a risky buy unless the upward momentum were pronounced and the indications of further progress were clear. The width of the range also has a bearing. A stock near the high of a 10-point spread between high and low is likely to be less volatile than one near the high of a 50 or 60-point range. The implication is that if a stock can cruise upward through a range of 50 points, it can with equal ease slide that far downward.
Obviously, stocks do not operate forever within predictable ranges. But an issue that has caught investors' eyes, and has started to run ahead of itself, its group, and the market can be considered to have a future. Its high-low levels of the past can be viewed as less significant, and the investor's effort can be bent toward determining how far the run will go.
A stock at mid-range presumably has a demonstrated potential for achieving a higher level, but the course of its action should be plotted to see whether it is at mid-range through a series of small ups and downs, or whether mid-range is simply the current point of a downward slideor, for that matter, the current point of a gradual climb.
A stock at its low should also be examined for hints as to the reasons for this state of affairs. It might best be shunnedbut not too quickly. For if it seems inherently sound, although low in relation to its group or the market as a whole, it may be a sleeper, the kind of depressed, overlooked, out-of-favor stock that offers a fine opportunity for the investor who is not afraid to run against the tide. Theoretically, at least, this is the kind of bargain that diligent investors are supposed to dig up for themselves. Be clearheaded; most depressed stocks are hovering at low levels for a reason. But the market is capricious enough to low-rate many issues for reasons having nothing to do with fundamental values.
The depressed issue usually offers a better possibility for improvement than the generally depressed group. If oils or chemicals or rails are unfashionable as a whole, there is, in most cases, a large reason for it. Customers are over-inventoried, sales are down, a competing industry has cut into a market - something has occurred which requires a fundamental correction before the industry will again seem attractive.
The depressed market, like the depressed stock, often has great possibilitiesif the investor can satisfy himself that he is getting in at an appropriately low level. The low of 1953 was a lovely opportunity. DuPont was under 100, General Dynamics was in the 30's, Union Carbide in the 60's, Central & Southwest was at 19 everything that is solid, glamorous, and soaring today was at bargain-basement prices.
The alternatives are many. The combination of factors that bear on any one issue at any one time is almost incalculable. But the fact remains that you must keep a keen eye on your investments, measure them against their historical performance, against their market category, and against the market itself to get a true measure of your success.