Peter Lynch’s Investment Philosophy
–Excerpt from Peter Lynch’s speech at the Harvard Business School New York Club’s 1990 Annual Gathering–International Dinner
The legendary investor Peter. Lynch Peter Lynch (1)
The legendary investor Peter. Lynch Peter Lynch (2)
Peter Lynch’s Investment Philosophy
Know your stock holdings
“You have to understand the stocks you own. It sounds simple, but very few people know how to do it. You should be able to explain you to a 12-year-old in two minutes or less. Reasons to buy a stock. If you can’t do that, if the only reason you’re buying the stock is because you think its price is going to go up, then you shouldn’t be buying it.”
“I can give you a simple common stock — the type of stock that most people buy. It’s a relatively mundane company that makes a simple product. The product has a 1M memory CMOS, bipolar RSC floating-point I/O interface processor, 16-bit dual-channel memory, Unix operating system, Whetstone million floating point operations per second silicone emitter, high bandwidth, and 15 microsecond computing power. But if you have You’ll never be able to make money with this seemingly “big” stock — never. It’s very important to know what you’re holding. The business you’re investing in should be simple. Give me good returns Simple companies that I can understand, like Dunkin’ Donuts, Laquinta motels, etc. It’s these companies that make good returns.”
Economic forecasting is futile
“Predicting the economy is completely futile, don’t try to predict interest rates. Alan Greenspan is the head of the Federal Reserve. He can’t predict interest rates. He can raise or lower interest rates, but he can’t tell you what interest rates are going to be in 12 months or two years. You can’t predict the stock market. It’s helpful to have this information when it’s going to happen. It would be very good. Most people should remember the recession of 1980-1982, the worst recession since the Great Depression. At that time our unemployment rate reached 15%, inflation at 14%, base rate at 20%. Did any of you get a call telling you there was going to be a recession? Do you remember any of those magazines you read regularly that successfully foreseen At that point? No one told me it was going to be that tragic anyway. You might not believe how much time people waste predicting what’s going to happen a year from now. Of course it’s great to know what’s going to happen a year from now. But You never know. So don’t waste your time. It doesn’t do any good.”
Don’t be impatient, you have plenty of time
“You have plenty of time. Don’t rush ideas, like when you think of a concept, you have to implement it right away. You actually have plenty of time for you to fully research the company. It pays me handsomely. All of the stocks are bought after the second, third or fourth or fifth year of my attention. Losing money in the stock market will make you lose quickly, but making money will be slow. There should be a difference between making money and losing money. There is some kind of balance, but there really isn’t.”
“I want to talk to you about Walmart, a company that went public in 1970. They had 38 stores at the time, a nice track record and a solid balance sheet. After the spin-off — of course, Walmart’s The stock is never popular because of the split — it’s selling for 8 cents per share on an adjusted basis. You might tell yourself that if I don’t buy Walmart shares next month, I’m going to miss out on a lifetime Best investment opportunity. 5 years later, Walmart has 125 stores and profits are up 7 times what they were 5 years ago. Guess what? In December 1980, Walmart had 275 stores and profits rose again to 5 times what they were 5 years ago. Guess what? The stock price rose to 5 times what it was 5 years ago and is now $1.89/share. In December 1985, it had 859 stores, and that doesn’t count Sam’s Club. Over that 5-year period, profits have gone up 6x, and the stock price is now $15.94. So you can tell yourself, oh my God, this stock went from 80 cents up to $15.94. I bought too late. It’s crazy. I shouldn’t be buying these clunky giants anymore. No, it’s not too late, not at all. Because Walmart today The closing price is $50. You have plenty of time to buy.” (To be continued)
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