One Up On Wall Street -- Peter Lynch

January 6, 2018 | Author: Anonymous | Category: Business, Finance, Investing
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One Up On Wall Street Peter Lynch With John Rothchild

Presented by: Kevin Clark

Facts About Lynch 

Graduated from Wharton School of Business  Managed Fidelity Magellan Fund (19771990) – Most successful fund in the world – Owns over 1400 stocks



Believes in Fundamental, Bottom-Up Approach

Lynch’s Initial Advice Lynch’s mantra: Average investors can become experts in their own field and can pick winning stocks as effectively as Wall Street professionals by doing just a little research.  Don’t listen to the pros – “Oxymorons”  Observe your environment for potential winners 

Lynch’s Initial Advice “Kick the tires”  Don’t worry about the market—it’s the stock! (bottom-up)  Pass the “mirror test” 

– Do I own a house? – Do I need the money? – Do I have the personal qualities it takes to

succeed?

Picking Winners 

Look for “tenbaggers” – Stock that goes up ten-fold or 900%



When looking at the strength of a company’s product, judge the effects on the bottom line – Is the company too big?



Categorize

Six Categories of Stocks 

Slow Growers – Large companies growing around rate of GNP – Expect dividends



Stalwarts – Annual growth around 10 to 12%



Fast Growers – Small and aggressive with 20 to 25% annual growth – Plenty of risk – Expect stock appreciation, not dividends

Six Categories of Stocks 

Cyclicals – Profits and sales rise and fall in regular fashion – Timing is everything; detect the early signs



Turnarounds – No growers usually in Chapter 11 or on verge – Upside: Bargain stock with huge accounting loss carry-

forward – Be careful here!



Asset Plays – Company sits on valuable asset that you know about

but Wall Street doesn’t

Picking Winners 

One characteristic of the perfect company – “Any idiot can run this business.”



Look for companies with these characteristics: – It sounds dull—or, even better, ridiculous. – It does something dull. – It does something disagreeable.

Picking Winners – It’s a spin-off. – The institutions don’t own it and the analysts

– – –



don’t follow it. There’s something depressing about it. It’s a no-growth industry. It’s got a niche. People have to keep buying it.

Picking Winners – It’s a user of technology. – The insiders are buyers. – The company is buying back shares.



What is the one single stock to avoid? – The hottest stock in the hottest industry

Earnings, Earnings, Earnings 

The number one factor when analyzing a company  P/E ratio – Use it to get hints about whether a stock is overvalued

or undervalued. (relative to others in the same industry) – Think of it as the number of years it will take to earn back your initial investment. 

Future earnings can’t be predicted – Find out how a company plans to increase earnings,

then periodically check to see if plans are working.

Assets, Assets, Debt 

Important in determining the “health” of the company



Companies with a strong cash position versus relatively low debt will not go bankrupt in downturns

Picking Winners: Conclusion 

Understand the nature of the companies whose stock you own  Putting stocks into categories gives you a better idea of what to expect from them  Big companies have small moves, small companies have big moves  Avoid hot stocks in hot industries

Picking Winners: Conclusion 

Invest in companies that appear dull and haven’t caught the eye of Wall Street  Look for companies with good earnings growth – Moderately fast growers (20 to 25%) in non-

growth industries ideal 

Look for companies that buy back their own stock

Picking Winners: Conclusion Companies that have no debt can’t go bankrupt  Be patient—watched stocks never bolt  Invest at least as much time in choosing a new stock as you would in choosing a new refrigerator  Don’t take the “pros’” advice—YOU CAN DO IT ON YOUR OWN! 

Interesting “Lynchisms” Pertaining to FI635 

Lynch says Value Line is good for research, but he doesn’t pay attention to timeliness rankings  Lynch has never bought a future or an option in his investing career – Says he doesn’t understand them – 80 to 95% of all amateurs lose money

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