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Kindle Notes & Highlights
by
Peter Lynch
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June 6 - June 27, 2019
If you feel left out of the dot.com jubilee, remind yourself that very few dot.com investors benefit from the full ride. It’s misleading to measure the progress of these stocks from the offering price that most buyers can’t get. Those who are allotted shares are lucky to receive more than a handful.
To my mind, the stock price is the least useful information you can track, and it’s the most widely tracked.
If you can follow only one bit of data, follow the earnings—assuming the company in question has earnings.
During the Gold Rush, most would-be miners lost money, but people who sold them picks, shovels, tents, and blue jeans (Levi Strauss) made a nice profit.
An amateur investor can pick tomorrow’s big winners by paying attention to new developments at the workplace, the mall, the auto showrooms, the restaurants, or anywhere a promising new enterprise makes its debut.
Liking a store, a product, or a restaurant is a good reason to get interested in a company and put it on your research list, but it’s not enough of a reason to own the stock!
My clunkers remind me of an important point: You don’t need to make money on every stock you pick.
Your losses are limited to the amount you invest in each stock (it can’t go lower than zero), while your gains have no absolute limit.
All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.
a cheap stock can always get cheaper.
Lately, healthy companies are skimping on their dividends and using the money to buy back their own shares, à la General Electric. Reducing the supply of shares increases the earnings per share, which eventually rewards shareholders, although they don’t reap the reward until they sell.
To help their shareholders avoid this double taxation, companies have abandoned the dividend in favor of the buyback strategy, which boosts the stock price.
People are advised to think long-term, but the constant comment on every gyration puts people on edge and keeps them focused on the short term.
frequent trading has made the stock markets more volatile.
day trading is a casino that supports a lot of accountants.
corrections (declines of 10 percent or more) occur every couple of years, and bear markets (declines of 20 percent or more) occur every six years.
When you’re a long-term investor, time is on your side.
You can find good reasons to scuttle your equities in every morning paper and on every broadcast of the nightly news.
“That’s not to say there’s no such thing as an overvalued market, but there’s no point worrying about it.”
Dumb money is only dumb when it listens to the smart money.
The more right you are about any one stock, the more wrong you can be on all the others and still triumph as an investor.
Visiting stores and testing products is one of the critical elements of the analyst’s job.
There seems to be an unwritten rule on Wall Street: If you don’t understand it, then put your life savings into it. Shun the enterprise around the corner, which can at least be observed, and seek out the one that manufactures an incomprehensible product.
Finding the promising company is only the first step. The next step is doing the research.
It doesn’t take much to outsmart the smart money, which, as I’ve said, isn’t always very smart.
It is personal preparation, as much as knowledge and research, that distinguishes the successful stockpicker from the chronic loser. Ultimately it is not the stock market nor even the companies themselves that determine an investor’s fate. It is the investor.
As I look back on it now, it’s obvious that studying history and philosophy was much better preparation for the stock market than, say, studying statistics.
The fund manager most likely is looking for reasons not to buy exciting stocks, so that he can offer the proper excuses if those exciting stocks happen to go up.
There’s an unwritten rule on Wall Street: “You’ll never lose your job losing your client’s money in IBM.”
Fund managers in general spend a quarter of their working hours explaining what they just did—first
In our business the indiscriminate selling of current losers is called “burying the evidence.”
When you ask a bank to handle your investments, mediocrity is all you’re going to get in a majority of the cases.
Big funds have the same built-in handicaps as big anythings—the bigger it is, the more energy it takes to move it.
Historically, investing in stocks is undeniably more profitable than investing in debt.
In spite of crashes, depressions, wars, recessions, ten different presidential administrations, and numerous changes in skirt lengths, stocks in general have paid off fifteen times as well as corporate bonds, and well over thirty times better than Treasury bills!
The same volatility in interest rates that enables clever investors to make big profits from bonds also makes holding bonds more of a gamble.
To me, an investment is simply a gamble in which you’ve managed to tilt the odds in your favor.
In stud poker and on Wall Street, miracles happen just often enough to keep the losers losing.
They realize the stock market is not pure science, and not like chess, where the superior position always wins.
Before you buy a share of anything, there are three personal issues that ought to be addressed: (1) Do I own a house? (2) Do I need the money? and (3) Do I have the personal qualities that will bring me success in stocks?
“Never invest in anything that eats or needs repairs”
Only invest what you could afford to lose without that loss having any effect on your daily life in the foreseeable future.
the list of qualities ought to include patience, self-reliance, common sense, a tolerance for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit to mistakes, and the ability to ignore general panic.
The true contrarian is not the investor who takes the opposite side of a popular hot issue (i.e., shorting a stock that everyone else is buying). The true contrarian waits for things to cool down and buys stocks that nobody cares about, and especially those that make Wall Street yawn.
When it comes to predicting the market, the important skill here is not listening, it’s snoring.
The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed.
Obviously you don’t have to be able to predict the stock market to make money in stocks, or else I wouldn’t have made any money.
“If you must forecast,” an intelligent forecaster once said, “forecast often.”
No matter how we arrive at the latest financial conclusion, we always seem to be preparing ourselves for the last thing that’s happened, as opposed to what’s going to happen next. This “penultimate preparedness” is our way of making up for the fact that we didn’t see the last thing coming along in the first place.
The great joke is that the next time is never like the last time, and yet we can’t help readying ourselves for it anyway.
