At the end of the day, what drives stock prices higher or lower is quite simple - supply and demand.

If you have more demand than supply, stock prices rise. If you have more supply than demand, stock prices fall.

Said differently, stock prices rise because there are more buyers for that stock than sellers. They fall when there are more sellers than buyers.

Yes, I know a lot of things go into determining the number of buyers and sellers - a company's earnings growth, tax-loss selling consideration, bull/bear markets.

Still, whether a stock moves higher or lower depends solely on the market for that stock - the buyers and the sellers.

If you understand this simple concept, you may likely gain an important perspective on the market and individual stock selection. That perspective is the following - even if you find what you think is the greatest stock value in the world, if no one is interested in the stock or that sector (i.e. no buyers), the stock will go nowhere.

This drives home an important point - stock selection cannot be done in a vacuum. Good stock pickers not only pick good stocks but also make sure those good stocks are in attractive industry sectors.

How do you know if an industry is attractive? Since I tend to buy and hold stocks for many years, I try to focus on industries that are growing faster than the overall economy. I also tend to focus on industry groups that are not in cyclical industries.

Attractive industry groups that represent excellent hunting grounds for buy candidates include health care, information services, and corporate outsourcing services.

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