Lynch Learnings: Part 1
- It's worth reminding ourselves that bull markets don't last forever and that patience is required on both sides.
- The typical winner in the Lynch portfolio takes 3 to 10 years to play out.
- Stock price is the least useful information but it is the most widely tracked.
- On the internet companies Lynch says that few companies will dominate the area. Shareholders in these triumphant companies will prosper, while shareholders in the laggards, the has-beens, and the should-have-beens will lose money.
- Whenever you invest in a company you are looking for its market capitalization to rise.
- When looking at a company who has say a 100 or a 200 PE look at what it revenues need to be at say a 40 PE. Then see whether that revenue exists today for a company or not. It will be rare that such an enormous amount of revenue will be generated by some company.
- On internet businesses he says there are 3 ways to invest in this theme -
- First is the 'pick and shovels' method. In the gold rush most lost money but the guys who provided the picks, shovels and the jeans (Levis) made most money. Hell Levis still makes money!
- Second, the 'free internet play' where actually an internet business is embedded in the business model already.
- Third, where the 'brick and mortar' businesses gain by cutting costs because of internet.
- Bill Gate's company wasn't in the box business; it sold the 'gas' that ran the boxes.
- 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 else.
- For a business it is important to keep a track of whether the future growth is going to come from and when it is likely to slow down.
- You don't have to make money on every stock you pick.
- Your loses are limited to the amount you invest, while your gains have no absolute limit.
- Cheap stocks can always get cheaper.
- A fallen stock (Bethlehem steel) may rise again. But assuming that will happen is wishing, not investing.
- Speaking of long-term gains, in eleven years' worth of luncheon and dinner speeches, I've asked for a show of hands: 'How many of you are long-term investors in stocks?' To date, the vote is unanimous - everybody's a long term investor, including the day traders in the audience who took a couple of hours off.
- Lynch is more interested in how many stocks went up or down i.e Advance Decline ratio rather than by how much the index went up or down.
- Lynch gives a case study of the Nifty 50 stocks which fell 50%-80% in the bear market of 1973-74. If an investor had slept off in the long term this 50 bucket would have still beaten the index.
- He advises not to put every penny in the stock market. He says put excess money which you will not require in the next 12 months or so.
- The bearish argument always sounds more intelligent.
- Stop listening to professionals.
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