One Up On Wall Street: How To Use What You Already Know To Make Money In

by Peter Lynch

I always keep some stalwarts in my portfolio because they offer pretty good protection during recessions and hard times.

Wall Street does not look kindly on fast growers that run out of stamina and turn into slow growers, and when that happens, the stocks are beaten down accordingly.

fast growers are the big winners in the stock market. I look for the ones that have good balance sheets and are making substantial profits. The trick is figuring out when they’ll stop growing, and how much to pay for the growth.

The autos and the airlines, the tire companies, steel companies, and chemical companies are all cyclicals. Even defense companies behave like cyclicals, since their profits’ rise and fall depends on the policies of various administrations.

You can lose more than fifty percent of your investment very quickly if you buy cyclicals in the wrong part of the cycle, and it may be years before you’ll see another upswing.

If you work in some profession that’s connected to steel, aluminum, airlines, automobiles, etc., then you’ve got your edge, and nowhere is it more important than in this kind of investment.

The Penn Central bankruptcy was one of the most traumatic events that ever happened to Wall Street. That this blue chip, this grand old company, this solid enterprise, could collapse was as startling and as unexpected as the collapse of the George Washington Bridge would be.

the occasional major success makes the turnaround business very exciting, and very rewarding overall.

Advanced Micro Devices and Texas Instruments, once champion fast growers, are now regarded as cyclicals. Cyclicals with serious financial problems collapse and then reemerge as turnarounds.

Basing a strategy on general maxims, such as “Sell when you double your money,” “Sell after two years,” or “Cut your losses by selling when the price falls ten percent,” is absolute folly. It’s simply impossible to find a generic formula that sensibly applies to all the different kinds of stocks.

Putting stocks in categories is the first step in developing the story. Now at least you know what kind of story it’s supposed to be. The next step is filling in the details that will help you guess how the story is going to turn out.