Question: Do you believe the "trend is your friend" concept? And what does this mean?

Marty Simon

Answer:

Dear Marty,

Well, the "trend is your friend" is a fairly common Wall Street cliche, but one that has quite a lot of validity. What it really means is investing in companies that are part of a pattern or a trend, and in some cases, a fad.

However, trends do not last forever; in fact, some (like the hoola hoop and the frisbee) are fairly short lived. Others, like the Internet craze, are longer lasting. Nevertheless, when one trend dies out, it's replaced by a new one -- with the death of the typewriter came the computer -- or perhaps more accurately, with the invention of the computer came the death of the typewriter.

Trend Searching

One way to spot trends at the beginning or early on before they are half over, is to keep up to date -- read the newspaper, listen to the news, browse the Internet, go to the movies, check out new music, read professional and industry publications, such as medical newsletters and energy reports.

Trends fall within industries. Among those most likely to spawn new products and services are (in alphabetical order):

• Accessories -- jewelry, sunglasses, belts, hair ornaments.
  
  
• Children's items -- clothing, games and equipment for babies, youngsters and teens are almost synonymous with trends.
  
  
• Clothing -- including shoes. There was a time when only workers wore blue jeans!
  
  
• Electronic equipment
  
  
• Energy -- ethanol fuel and solar power, for example, are becoming more mainstream.
  
  
• Food & drink -- once there was only iceburg lettuce; now radicchio, watercress, bib and endive have taken center stage. Younger people are unfamiliar with a world without lite beer, diet soft drinks and low-fat frozen dinners.
  
  
• Housing, furniture & appliances
  
  
• Packaging -- consumers are attracted to new presentations. The soap pump is slowly replacing bar soap, for example.
  
  
• Prescription drugs -- especially those used to combat new illnesses or diseases that are spreading at a worrisome rate.
  
  
• Restaurants -- those who invested early on in the fast food trend or Ben & Jerry's are happy they did so.
  
  
• Vehicles -- models of bikes, cars, trucks and motorcycles fluctuate in popularity.

When to invest in a trend and when to give it up

When you've identified a well-run company with sound management that is participating in a trend, decide the percentage of your portfolio you sensibly can allot to what is a somewhat high-risk investment.

Consider starting small and adding more shares if the trend continues to be confirmed.

You'll want to sell when the upward momentum of the stock starts to slow down or is broken. Keep in mind that historically, $100 and $200 are benchmarks above which investors tend to be reluctant to go. People also typically sell at round numbers...when a stock reaches $50 not $44 or $100 not $83.

Good luck!