During his Peak Peter Lynch was the Worlds Best Money Manager.
Here's How he Picked His Stocks:
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Here's How he Picked His Stocks:
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2/
He Invested in What he Knew
Every stock has a story. The better you understand a company the more likely you are to find a good one.
Lynch would rather invest in motel chains rather than fiber optics.
He Invested in What he Knew
Every stock has a story. The better you understand a company the more likely you are to find a good one.
Lynch would rather invest in motel chains rather than fiber optics.
3/
He Became Familiar with the Company
He asked:
How does it intend to grow its earnings?
Are those intentions being fulfilled?
He Became Familiar with the Company
He asked:
How does it intend to grow its earnings?
Are those intentions being fulfilled?
4/
There are five ways a company can increase earnings:
1. Cut costs
2. Raise prices
3. Expand into new markets
4. Sell more in old markets
5. Revitalize, close, or sell a losing operation.
There are five ways a company can increase earnings:
1. Cut costs
2. Raise prices
3. Expand into new markets
4. Sell more in old markets
5. Revitalize, close, or sell a losing operation.
5/
He Categorized the Company into 6 Types
1. Slow Growers
2. Stalwarts
3. Fast-Growers
4. Cylicals
5. Turnarounds
6. Assets Opportunities
He Categorized the Company into 6 Types
1. Slow Growers
2. Stalwarts
3. Fast-Growers
4. Cylicals
5. Turnarounds
6. Assets Opportunities
6/
Slow Growers
Large, aging companies.
Expected to grow slightly faster than GDP
They are low-risk low reward.
Often pay consistent dividends.
Slow Growers
Large, aging companies.
Expected to grow slightly faster than GDP
They are low-risk low reward.
Often pay consistent dividends.
7/
Stalwarts
Large companies but they still have room to grow.
Will grow earnings at 10-12% per year.
They offer protection during recessions.
They are low risk, moderate reward.
Stalwarts
Large companies but they still have room to grow.
Will grow earnings at 10-12% per year.
They offer protection during recessions.
They are low risk, moderate reward.
8/
Fast-Growers
Small, aggressive, new companies.
They grow at 20%+ per year.
This is where you find the 10-baggers.
They are high risk, high reward.
Fast-Growers
Small, aggressive, new companies.
They grow at 20%+ per year.
This is where you find the 10-baggers.
They are high risk, high reward.
9/
Cyclicals
Their profits rise and fall with the economy.
During booms, profits will rise.
During recessions, profits will fall.
These are short-term buys and sells.
Cyclicals can make you a lot of money if timed right. Timed wrong and you can lose a lot too.
Cyclicals
Their profits rise and fall with the economy.
During booms, profits will rise.
During recessions, profits will fall.
These are short-term buys and sells.
Cyclicals can make you a lot of money if timed right. Timed wrong and you can lose a lot too.
10/
Turnarounds
These are struggling companies that are trying to turn things around.
They may have no or negative growth.
They may be bankrupt and have a chance of going to $0.
If things go right their prices can rise very quickly.
Turnarounds
These are struggling companies that are trying to turn things around.
They may have no or negative growth.
They may be bankrupt and have a chance of going to $0.
If things go right their prices can rise very quickly.
11/
Assets Opportunities
When the company owns something that the market is overlooking.
It could be a resource, land, property, or even cash.
They can be low risk, and high reward if you know how to value the asset.
Assets Opportunities
When the company owns something that the market is overlooking.
It could be a resource, land, property, or even cash.
They can be low risk, and high reward if you know how to value the asset.
12/
He looked at the numbers:
Year-by-Year Earnings - If earnings are stable, the price will be stable.
Earnings Growth - If earnings are growing price should grow too.
PE Ratio - Better companies often have higher PE ratios than poor companies.
He looked at the numbers:
Year-by-Year Earnings - If earnings are stable, the price will be stable.
Earnings Growth - If earnings are growing price should grow too.
PE Ratio - Better companies often have higher PE ratios than poor companies.
13/
PE ratio compared to the historical average - If it's low it may be undervalued. You should ask why it's low.
PE Ratio compared to industry average - Again if its low it may be undervalued. But remember to ask why it's low.
PE ratio compared to the historical average - If it's low it may be undervalued. You should ask why it's low.
PE Ratio compared to industry average - Again if its low it may be undervalued. But remember to ask why it's low.
14/
PEG Ratio - High growth companies will have higher PE ratios. But how high should they be? Lynch considers stocks with a PEG over 1 expensive.
Debt to Equity - A low debt to equity indicates a strong balance sheet.
PEG Ratio - High growth companies will have higher PE ratios. But how high should they be? Lynch considers stocks with a PEG over 1 expensive.
Debt to Equity - A low debt to equity indicates a strong balance sheet.
15/
Net cash per share: = cash and equivalents - long-term debt /shares outstanding. If it's high it can provide support for the stock price.
Net cash per share: = cash and equivalents - long-term debt /shares outstanding. If it's high it can provide support for the stock price.
16/
Dividend and Payout Ratio: If you want a company that pays a dividend make sure it wasn't cut during the last recession.
Inventories: Important for cyclicals. If inventories are building up it may be a bad sign.
Dividend and Payout Ratio: If you want a company that pays a dividend make sure it wasn't cut during the last recession.
Inventories: Important for cyclicals. If inventories are building up it may be a bad sign.
17/
He Invests for the Long Term
Lynch's preferred stock type was the fast grower.
He bought them early and lets them grow for many years.
He Invests for the Long Term
Lynch's preferred stock type was the fast grower.
He bought them early and lets them grow for many years.
18/
He Diversified
Lynch invested in hundreds of different stocks at one time.
He Diversified
Lynch invested in hundreds of different stocks at one time.
This week we are profiling Peter Lynch.
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