Peter Lynch – Beating The Street
I had the great pleasure of meeting Tom Gardner, the CEO and co-founder of The Motley Fool, and several other wonderful Fools a few weeks back. Great ideas flowed freely that evening, as did the excellent boutique beer. Tom’s comment that he learnt something new every time he re-read Peter Lynch inspired me to re-read Lynch’s Beating The Street. What I love about Lynch is his open minded disposition, as the first two words in this timely piece of advice illustrates, though saying that, it is the advice rather than his open mind that is worth focusing on.
Whatever method you use to picks stocks or stock mutual funds, your ultimate success or failure will depend on your ability to ignore the worries long enough to allow your investments to succeed. It isn’t the head but the stomach that determines the fate of the stockpicker. The skittish investor, no matter how intelligent, is always susceptible to getting flushed out of the market by the brush beaters of doom.
Peter’s Principle #3: Never invest in any idea you can’t illustrate with a crayon.
#4: You can’t see the future through a rearview mirror.
#7 The extravagance of any corporate office is directly proportional to management’s reluctance to reward the shareholders.
#11 The best stock to buy may be the one you already own.
# 14 If you like the store, chances are you’ll love the stock.
The St. Agnes Chorus
Lynch maxims through a seventh-grade filter, once again highlight Lynch’s open mind.
- Never fall in love with a stock; always have an open mind.
- Just because a stock goes down doesn’t mean it can’t go lower.
- You should not buy a stock because it’s cheap but because you know a lot about it.
My diaries are full of such missed opportunities, but the stock market is merciful – it always gives the nincopoop a second chance.
So much wisdom in one sentence. It’s a great idea to keep an investing diary. Jot down all your notes in it and be sure to write why you buy and sell companies. Over time it will become a great resource and will protect you from the enemy of continuous improvement, self deception. Don’t sweat your missed opportunities, there will be many more.
Flexibility was the key [to Magellan’s success]. There were always undervalued companies to be found somewhere.
By abandoning these great companies for lesser issues, I became a victim of the all-too-common practice of “pulling out the flowers and watering the weeds”
This is one of the keys to successful investing: focus on companies, not on the stocks.
Bargains are the holy grail of the true stockpicker. the fact that 10-30 percent of our net worth is lost in a market sell-off is of little consequence. We see the latest correction not as a disaster but as an opportunity to acquire more shares at low prices. This is how great fortunes are made over time.
The alert shopper has a chance to get the message about retailers earlier than Wall Street does, and to make back all the money he or she ever spends on the merchandise – by buying undervalued stocks.
It was huge gains in a few positions that led to Magellan’s superior results.
In stocks as in romance, ease of divorce is not a sound basis for commitment. If you’ve chosen widely to begin with, you won;t want a divorce. And if you haven’t you;re in a mess no matter what.
There were hundreds of losers in Magellan’s portfolio… Fortunately, they weren’t my biggest positions. This is an important aspect of portfolio management – containing your losses.
There’s no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or , worse, to buy more of it, when the fundamentals are deteriorating.
Since bonds come before stocks in the lineup of claimants on the company’s assets, you can be sure that when bonds sell for next to nothing, the stock will be worth even less… before you invest in a low-priced stock in a shaky company, look at what’s been happening to the price of the bonds.
Stockpicking is both an art and a science, but too much of either is a dangerous thing.
The smallest investor can follow the Rule of Five and limit the portfolio to five issues. If just one of those is a 10-bagger and the other four combined go nowhere, you’ve still tripled your money.
That last quotes succinctly conveys what I tried to in this post, Gain required to Make you Whole.
Getting involved with a manageable number of companies and confining your buying ans selling to these is not a bad strategy. Once you’ve bought a stock, presumably you’ve learnt something about the industry and the companies place within it… The more common practice of buying, selling, and forgetting a long string of companies is not likely to succeed.
There are many common themes in the quotes; buy what you know, buy companies not stocks, and water the flowers to name a few. I hope you’ve enjoyed these Lynchisms and perhaps learnt or at least was reminded of something as well. Please take a minute to share your favourite Lynch quote(s).
If that is enough Lynch for one sitting then check out Peter Lynch’s 20 Golden Rules.