Avoid Sympathy Stock Moves

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Avoid Sympathy Stock Moves

There is very little that's really new in the stock market. History just keeps repeating itself. In the summer of 1963, I bought Syntex, which afterwards advanced 400%. Yet most people would not buy it then because it had just made a new high in price at $100 and its P/E ratio, at 45, seemed too high.

Several investment firms recommended G. D. Searle, a sympathy play, which at the same time looked much cheaper in price and had a similar product to Syntex's. But Searle failed to produce stock market results. Syntex was the leader, Searle the laggard.

Sympathy plays are stocks in the same group as a leading stock, but ones showing a more mediocre record and weaker price performance. They eventually attempt to move up and follow "in sympathy" the powerful price movement of the real group leader. In 1970, Levitz Furniture became an electrifying stock market winner. Wickes Corp. copied Levitz and plunged into the warehouse furniture business.

Many people bought Wickes instead of Levitz because it was cheaper in price. Wickes never performed. It ultimately got into financial trouble, whereas Levitz increased 900% before it finally topped. As Andrew Carnegie, the steel industry pioneer, said in his autobiography, "The first man gets the oyster; the second, the shell."