One Up On Wall Street

1
One Up On Wall Street

• Peter Lynch
• With John Rothchild
• Presented by Kevin Clark

2
Facts About Lynch

• Graduated from Wharton School of Business
• Managed Fidelity Magellan Fund (1977-1990)
• Most successful fund in the world
• Owns over 1400 stocks
• Believes in Fundamental, Bottom-Up Approach

3
Lynchs Initial Advice

• Lynchs mantra Average investors can become
  experts in their own field and can pick winning
  stocks as effectively as Wall Street
  professionals by doing just a little research.
• Dont listen to the pros Oxymorons
• Observe your environment for potential winners

4
Lynchs Initial Advice

• Kick the tires
• Dont worry about the marketits the stock!
  (bottom-up)
• Pass the mirror test
• Do I own a house?
• Do I need the money?
• Do I have the personal qualities it takes to
  succeed?

5
Picking Winners

• Look for tenbaggers
• Stock that goes up ten-fold or 900
• When looking at the strength of a companys
  product, judge the effects on the bottom line
• Is the company too big?
• Categorize

6
Six Categories of Stocks

• Slow Growers
• Large companies growing around rate of GNP
• Expect dividends
• Stalwarts
• Annual growth around 10 to 12
• Fast Growers
• Small and aggressive with 20 to 25 annual growth
• Plenty of risk
• Expect stock appreciation, not dividends

7
Six Categories of Stocks

• Cyclicals
• Profits and sales rise and fall in regular
  fashion
• Timing is everything detect the early signs
• Turnarounds
• No growers usually in Chapter 11 or on verge
• Upside Bargain stock with huge accounting loss
  carry- forward Be careful here!
• Asset Plays
• Company sits on valuable asset that you know
  about but Wall Street doesnt

8
Picking Winners

• One characteristic of the perfect company
• Any idiot can run this business.
• Look for companies with these characteristics
• It sounds dullor, even better, ridiculous.
• It does something dull.
• It does something disagreeable.

9
Picking Winners

• Its a spin-off.
• The institutions dont own it and the analysts
  dont follow it.
• Theres something depressing about it.
• Its a no-growth industry.
• Its got a niche.
• People have to keep buying it.

10
Picking Winners

• Its a user of technology.
• The insiders are buyers.
• The company is buying back shares.
• What is the one single stock to avoid?
• The hottest stock in the hottest industry

11
Earnings, Earnings, Earnings

• The number one factor when analyzing a company
• P/E ratio
• Use it to get hints about whether a stock is
  overvalued or undervalued. (relative to others in
  the same industry)
• Think of it as the number of years it will take
  to earn back your initial investment.
• Future earnings cant be predicted
• Find out how a company plans to increase
  earnings, then periodically check to see if plans
  are working.

12
Assets, Assets, Debt

• Important in determining the health of the
  company
• Companies with a strong cash position versus
  relatively low debt will not go bankrupt in
  downturns

13
Picking Winners Conclusion

• Understand the nature of the companies whose
  stock you own
• Putting stocks into categories gives you a better
  idea of what to expect from them
• Big companies have small moves, small companies
  have big moves
• Avoid hot stocks in hot industries

14
Picking Winners Conclusion

• Invest in companies that appear dull and havent
  caught the eye of Wall Street
• Look for companies with good earnings growth
• Moderately fast growers (20 to 25) in non-growth
  industries ideal
• Look for companies that buy back their own stock

15
Picking Winners Conclusion

• Companies that have no debt cant go bankrupt
• Be patientwatched stocks never bolt
• Invest at least as much time in choosing a new
  stock as you would in choosing a new refrigerator
• Dont take the pros adviceYOU CAN DO IT ON
  YOUR OWN!

16
Interesting Lynchisms Pertaining to FI635

• Lynch says Value Line is good for research, but
  he doesnt pay attention to timeliness rankings
• Lynch has never bought a future or an option in
  his investing career
• Says he doesnt understand them
• 80 to 95 of all amateurs lose money