Thursday, May 12, 2011

Best Passages from Peter Lynch's Beating the Street: Part 2

I haven't had much time to go through Peter Lynch's Beating the Street since I last posted, but today I have some free time and would like to get these notes down for yours and my own reference.
  • This is one of the keys to successful investing: focus on the companies, not on the stocks.
  • My methods were not much different from an investigative reporter - reading the public documents for clues, talking with intermediaries such as analysts and investor relations people for more clues, and then going directly to the primary sources: the companies themselves.
  • Every stockpicker could benefit from keeping a notebook of [stock] stories. Without one, it's easy to forget why you bought something in the first place.
  • If you're prepared to invest in a company then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won't get bored.
  • A computer company can lose half its value overnight when a rival unveils a better product, but a chain of donut franchises in New England is not going to lose business when somebody opens a superior donut franchise in Ohio.
  • When you have to concern yourself with what the person behind you thinks about your work, it seems to me that you cease to be a professional. You are no longer responsible for what you do. This creates a doubt in your mind as to whether you are capable of succeeding at what you do--otherwise, why would they be monitoring your every move?
  • Peter's Principle #8: When yields on long-term government bonds exceed the dividend yield of the S&P 500 by 6 percent or more, sell your stocks and buy bonds.
  • Why investors attempt to prepare for total disaster by bailing out of their best investments is beyond me. If total disaster strikes, cash in the bank will be just as useless as a stock certificate. On the other hand, if total disaster does not strike (a more likely outcome, given the record) the "cautious" types become the reckless ones, selling their valuable assets for a pittance.
  • No matter how well you think you understand a business, something can always happen that will surprise you.
  • Bargains are the holy grail of the true stockpicker. The fact that 10-30 percent of our net worth is lost in a market sell-off is of little consequence. We see the latest correction not as a disaster but as an opportunity to acquire more shares at low prices. This is how great fortunes are made over time.
  • [Sarcastically talking about a bad call on IBM] you aren't really a fund manager unless you have Big Blue in the portfolio.
  • How much time you spend on researching stocks is directly proportional to how many stocks you own.
  • In stocks as in romance, ease of divorce is not a sound basis for commitment. If you've chosen wisely to begin with, you won't want a divorce. And if you haven't you're in a mess no matter what. All the liquidity in the world isn't going to save you from pain, suffering, and probably a loss of money.
  • Peter's principle #11: The best stock to buy may be the one you already own.
  • Peter's principle #12: A sure cure for taking a stock for granted is a big drop in the price.
  • When your best-case scenario turns out to look worse than everybody else's worst-case scenario, you have to worry that the stock is floating on a fantasy.
  • Tbere's no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or, worse, to buy more of it, when the fundamentals are deteriorating.
  • Peter's principle #13: Never bet on a comeback while they're playing "Taps".
  • Here's a tip from experience: before you invest in a low-priced stock in a shaky company, look at what's been happening to the price of the bonds.
  • Cyclicals are like blackjack: stay in the game too long and it's bound to take back all your profit.
  • Stockpicking is both an art and a science, but too much of either is a dangerour thing. A person infatuated with measurement, who has his head stuck in the sand of the balance sheets, is not likely to succeed. If you could tell the future from a balance sheet, then mathematicians and accountants would be the richest people in the world by now.
  • A pile of software isn't worth a damn if you haven't done your basic homework on the companies.
  • I've learned to think of investments not as disconnected events, but as continuing sagas, which need to be rechecked from time to time for new twists and turns in the plots. Unless a company goes bankrupt, the story is never over. A stock you might have owned 10 years ago, or 2 years ago, may be worth buying again.

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