Finished reading this in about 2 days. Short book and an easy read. Here are some of the principles
Don’t listen to the hype
Lynch explains his
investing style in an extended analogy to a cocktail party and the
chatter that inevitably turns to the next hot stock. Depending on how
the market is doing and a few other factors, the guest with the stock
tip will either be the life of the party or the guy who gets pushed to
the back near the vegetable platter. Either way, he says, most people
take an irrational approach to investing.
People become interested when a given stock becomes the new, hot thing or is a player in the “now” industry. If companies like Celgene (Nasdaq: CELG) or RF Micro Devices (Nasdaq: RFMD)
sound familiar, then pay attention. Like lemmings, people naturally get
caught up in the crowd and lose sight of what’s really important. Lynch
stresses the basics.
If you find a company that’s the new hot thing and, without bias,
you can say that its numbers still look impressive, then go ahead and
invest. You might still catch an impressive return on that investment,
popularity aside.
But Lynch seemingly isn’t concerned with the companies that people
are talking about near the punch bowl, or with the tip he got about
that new, amazing company that will change life as we know it on planet
Earth. The best companies are most often right in front of your face.
They’re the ones you encounter on a daily basis and that you can easily
understand. Lynch loved eating tacos and other treats from fast-food
mover Taco Bell, so he invested in Yum! Brands (NYSE: YUM). Like many Americans, he was startled by the excessive amount of refuse produced by the average consumer, so he bought Waste Management (NYSE: WMI). Invest in what you know. With a little bit of fundamental research, the rest will take care of itself.
People don’t care about garbage collection
We
tend to disregard the everyday regulars as potential investments,
because no one really wants to talk about them. They’re not sexy,
they’re not hot, and they surely won’t make you the center of attention
in conversation. But boredom and disinterest are two critical elements
in finding the next 10-, 30-, and 50-baggers — Lynch coined the term,
after all.
Some of Lynch’s favorite (and most profitable) investments have come
in the form of generally disagreeable industries, such as funeral home
services and trash removal.
These aren’t the companies that people secretly tell their best
friend about when they owe them a favor (even though they probably
should). In many cases, they’re solidly run, with strong market share,
great numbers, and little competition. Furthermore, few people pay them
any attention until they’ve become the behemoths in their respective
industries. And that’s why anybody can get in on them.
Here are 13 questions that a “Lynchian” investor will ask about a company:
- 1. Does it sound dull or, even better, ridiculous?
- 2. Does it do something dull?
- 3. Does it do something disagreeable?
- 4. Is it a spinoff?
- 5. Is it disregarded and not owned by institutions/not followed by analysts?
- 6. Do rumors abound involving toxic waste and/or Mafia ownership?
- 7. Is there something depressing about it?
- 8. Is it a no-growth industry?
- 9. Has it got a niche?
- 10. Do people have to keep buying it?
- 11. Is it a user (not producer) of technology?
- 12. Are insiders buying it?
- 13. Is the company buying back shares?
If you answered yes to these questions, you might have found the
next undervalued, underappreciated pick of the decade. While it may not
be the be-all and end-all to investing, it may get you thinking about
the right types of companies.
http://www.fool.com/investing/small-cap/2006/09/06/foolish-book-review-quotone-up-on-wall-streetquot.aspx
