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Kindle Notes & Highlights
by
Peter Lynch
Read between
June 6 - June 27, 2019
I don’t believe in predicting markets. I believe in buying great companies—especially companies that are undervalued, and/or underappreciated.
The market ought to be irrelevant. If I could convince you of this one thing, I’d feel this book had done its job.
“As far as I’m concerned,” Buffett has written, “the stock market doesn’t exist. It is there only as a reference to see if anybody is offering to do anything foolish.”
I’ve made money even in lousy markets, and vice versa. Several of my favorite tenbaggers made their biggest moves during bad markets.
If you wake up in the morning and think to yourself, “I’m going to buy stocks because I think the market is going up this year,” then you ought to pull the phone out of the wall and stay as far away as possible from the nearest broker. You’re relying on the market to bail you out, and chances are, it won’t.
Pick the right stocks and the market will take care of itself.
The way you’ll know when the market is overvalued is when you can’t find a single company that’s reasonably priced or that meets your other criteria for investment.
What I hope you’ll remember most from this section are the following points: • Don’t overestimate the skill and wisdom of professionals. • Take advantage of what you already know. • Look for opportunities that haven’t yet been discovered and certified by Wall Street—companies that are “off the radar scope.” • Invest in a house before you invest in a stock. • Invest in companies, not in the stock market. • Ignore short-term fluctuations. • Large profits can be made in common stocks. • Large losses can be made in common stocks. • Predicting the economy is futile. • Predicting the short-term
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A great patients’ drug is one that cures an affliction once and for all, but a great investor’s drug is one that the patient has to keep buying.
Perhaps a winning investment seems so unlikely in the first place that people can best imagine it happening as far away as possible, somewhere off in the Great Beyond, just as we all imagine that perfect behavior takes place in heaven and not on earth.
“Discounting” is a Wall Street euphemism for pretending to have anticipated surprising developments.
You’re looking for a situation where the value of the assets per share exceeds the price per share of the stock. In such delightful instances you can truly buy a great deal of something for nothing.
the edge that being in a business gives the average stockpicker. On top of that, there’s the consumer’s edge that’s helpful in picking out the winners from the newer and smaller fast-growing companies, especially in the retail trades.
you ought to treat the initial information (whatever brought this company to your attention) as if it were an anonymous and intriguing tip, mysteriously shoved into your mailbox.
Investing without research is like playing stud poker and never looking at the cards.
If you’re considering a stock on the strength of some specific product that a company makes, the first thing to find out is: What effect will the success of the product have on the company’s bottom line?
you’ll get your biggest moves in smaller companies.
Once I’ve established the size of the company relative to others in a particular industry, next I place it into one of six general categories: slow growers, stalwarts, fast growers, cyclicals, asset plays, and turnarounds.
Slow-growing companies, as you might have guessed, grow very slowly—more or less in line with the nation’s GNP, which lately has averaged about three percent a year. Fast-growing companies grow very fast, sometimes as much as 20 to 30 percent a year or more. That’s where you find the most explosive stocks.
I separate the growth stocks into slow growers (sluggards), medium growers (stalwarts), and then the fast growers—the superstocks that deserve the most attention.
Another sure sign of a slow grower is that it pays a generous and regular dividend.
When you traffic in stalwarts, you’re more or less in the foothills: 10 to 12 percent annual growth in earnings.
So if you own a stalwart like Bristol-Myers and the stock’s gone up 50 percent in a year or two, you have to wonder if maybe that’s enough and begin to think about selling.
Stalwarts are stocks that I generally buy for a 30 to 50 percent gain, then sell and repeat the process with similar issues that haven’t yet appreciated.
I always keep some stalwarts in my portfolio because they offer pretty good protection during recessions and hard times.
A fast-growing company doesn’t necessarily have to belong to a fast-growing industry. As a matter of fact, I’d rather it didn’t,
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.
So while the smaller fast growers risk extinction, the larger fast growers risk a rapid devaluation when they begin to falter.
The autos and the airlines, the tire companies, steel companies, and chemical companies are all cyclicals. Even defense companies behave like cyclicals,
Timing is everything in cyclicals, and you have to be able to detect the early signs that business is falling off or picking up. 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 best thing about investing in successful turnarounds is that of all the categories of stocks, their ups and downs are least related to the general market.
The only positive aspect is that some companies that diworseify themselves into sorry shape are future candidates for turnarounds.
An asset play is any company that’s sitting on something valuable that you know about, but that the Wall Street crowd has overlooked.
Cyclicals with serious financial problems collapse and then reemerge as turnarounds.
Growth companies that can’t stand prosperity foolishly diworseify and fall out of favor, which makes them into turnarounds.
When somebody says, “Any idiot could run this joint,” that’s a plus as far as I’m concerned, because sooner or later any idiot probably is going to be running it.
(1) IT SOUNDS DULL—OR, EVEN BETTER, RIDICULOUS
(2) IT DOES SOMETHING DULL
A company that does boring things is almost as good as a company that has a boring name, and both together is terrific. Both together is guaranteed to keep the oxymorons away until finally the good news compels them to buy in, thus sending the stock price even higher. If a company with terrific earnings and a strong balance sheet also does dull things, it gives you a lot of time to purchase the stock at a discount.
(3) IT DOES SOMETHING DISAGREEABLE
(4) IT’S A SPINOFF
Large parent companies do not want to spin off divisions and then see those spinoffs get into trouble, because that would bring embarrassing publicity that would reflect back on the parents. Therefore, the spinoffs normally have strong balance sheets and are well-prepared to succeed as independent entities.
month or two after the spinoff is completed, you can check to see if there is heavy insider buying among the new officers and directors. This will confirm that they, too, believe in the company’s prospects.
(5) THE INSTITUTIONS DON’T OWN IT, AND THE ANALYSTS DON’T FOLLOW IT
(6) THE RUMORS ABOUND: IT’S INVOLVED WITH TOXIC WASTE AND/OR THE MAFIA
(7) THERE’S SOMETHING DEPRESSING ABOUT IT
(8) IT’S A NO-GROWTH INDUSTRY
for every single product in a hot industry, there are a thousand MIT graduates trying to figure out how to make it cheaper in Taiwan.
(9) IT’S GOT A NICHE
(10) PEOPLE HAVE TO KEEP BUYING IT
