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As part of David Merkel’s rules on industry selection, he lists the following:

• Buy strong companies in weak industries when the industry pricing outlook seems hopeless.
• Buy moderate to strong companies in strong industries where the earnings power and duration are underestimated.
• Underweight/ Ignore/ Short industries where pricing power is likely to be negative for several more years, and especially industries that are in terminal decline.
• Avoid fad industries. There are P/E levels that no industry can grow into.

My best example of #1 is the P&C insurance industry in early 2000. Total gloom. I

Weyerhaeuser (WY) was founded as a timber/lumber enterprise. In the 1970s or thereabouts, many wood products (lumber/plywood) producers diversified as a form of integration into paper and packaging products. The reason was lumber mills produced waste material (chips, etc) which could be used in making paper pulp. Thus, WY added paper, as did Georgia Pacific, while International Paper (IP) went the other way by getting into the wood products business.

Now WY is unwinding that diversification and returning to its roots. Just guessing at the strategic rationale: the paper business is very capi