1. What is the advantage of using a composite of indicators (such as the 10 leading indicators) over simply using an individual indicator?
2. Do leading indicators tend to give longer warnings before peaks or before troughs? What is the implication for the investor?
3. Comment on whether each of the following three industries is sensitive to the business cycle. If it is sensitive, does it do better in a boom period or a recession?
a. Automobiles
b. Pharmaceuticals
c. Housing
4. List the five stages of the industry life cycle. How does the pattern of cash dividend payments change over the cycle? (A general statement is all that is required.)
5. Why might a firm begin paying stock dividends in the growth stage?
6. If the investor does not correctly identify the crossover point between growth and expansion, what might happen to the price of the stock?
7. Suggest two companies that have continued to grow in nongrowth industries, and explain why.
8. What are the five competitive forces that affect prices and profitability in an industry?
9. As a follow-up to question 8, give two examples of powerful suppliers.
10. Who has the greater advantage for research and development in the pharmaceutical industry, large drug companies or smaller ones?
11. What is meant by the concept of rotational investing?
12. Explain why low interest rates make housing stocks and other related stocks attractive.
13. If an investor fears higher inflation, what possible industries might he or she choose for investment?