Why blind cloning without knowing the allocations or thought process of someone else can be Dangerous?
One of the best case studies from Peter Lynch :)
Time for a short ๐งต๐งต๐งต๐งต
One of the best case studies from Peter Lynch :)
Time for a short ๐งต๐งต๐งต๐งต
This incident is from 2003 when Peter Lynch made his comeback of sorts.
A regulatory filing in August 2003 showed that Mr. Lynch, the celebrated former skipper of
Fidelity Magellan Fund, owned 1.8 million shares of tiny SafeScript Pharmacies Inc.
A regulatory filing in August 2003 showed that Mr. Lynch, the celebrated former skipper of
Fidelity Magellan Fund, owned 1.8 million shares of tiny SafeScript Pharmacies Inc.
"I would not have touched this little company with a 10-foot pole except for his involvement."
"If it was good enough for Peter Lynch, it was good enough for me," Mr. Glasgow says, adding that he plowed nearly $498,000 into the stock and his relatives invested too.
"If it was good enough for Peter Lynch, it was good enough for me," Mr. Glasgow says, adding that he plowed nearly $498,000 into the stock and his relatives invested too.
They were among hundreds of fans of Mr. Lynch following him into SafeScript stock. By late
January this year, SafeScript had a stock-market value of $125 million. Mr. Lynch owned nearly
8%."
January this year, SafeScript had a stock-market value of $125 million. Mr. Lynch owned nearly
8%."
Then the roof fell in. In February, the company announced regulators were investigating its
accounting. The chief executive and two other managers quit. Soon, the company filed for
Chapter 11 bankruptcy protection. It was found that company was inflating its revenues and profits.
accounting. The chief executive and two other managers quit. Soon, the company filed for
Chapter 11 bankruptcy protection. It was found that company was inflating its revenues and profits.
Mr. Lynch says he was baffled. "It was a total surprise, out of left field," he says. "It's a terrible
tragedy."
tragedy."
Even the best investors have their misses, and Mr. Lynch freely admits this was one. "Just
because I buy something doesn't mean it's going to work."
"People have to do their own homework."
because I buy something doesn't mean it's going to work."
"People have to do their own homework."
Mr. Lynch says he never sold any of his SafeScript stock, and took a beating along with others when it tanked.
The Key Learnings are:-
1. Peter Lynch who is a celebrated investor (27% CAGR for 12 years), can also go wrong. Yet people ended up aping him.
2. Blind buying without self study can be dangerous.
1. Peter Lynch who is a celebrated investor (27% CAGR for 12 years), can also go wrong. Yet people ended up aping him.
2. Blind buying without self study can be dangerous.
3. He must have lost a tiny portion of his networth ($450M). Whereas, those who cloned him blindly didn't pay attention to his allocations or % networth at risk.
4. As he says himself:- "Some of these work, some don't."
4. As he says himself:- "Some of these work, some don't."
5. Invest only when you are convinced, never blindly borrow conviction from the other person who could actually be wrong or biased.
Yet he/she has a small portion of Networth allocated to it vs you who ended up allocating a lot.
The end.
Yet he/she has a small portion of Networth allocated to it vs you who ended up allocating a lot.
The end.
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