The title is a statement of legendary Investor and The person to whome many new commers like me follow like god. Non other than, Warren Buffet. It is a good start for today’s post. It is the subject where, no matter how much I write, it is less. But I want to dedicate this post to my most favorite writer and one of the worlds best fund manager, Peter Lynch. Peter Lynch ran the Fidelity Magellan Fund for 13 years, during which time Magellan was the number one ranked general equity fund in America.. His books One Up on Wall Street, my most fevorite book on investing, and Beating the Street are filled with his accumulated wisdom and in Beating the Street he gives a fairly detailed account of how he did his analysis. In this post, I will discuss some wisdom of Peter lynch, and I am sure that you will confused that is it a quote by warren buffet or peter Lynch?. I was also confused but read it.. Why I am saying it? Just look at the quote “Never invest in any Idea you can’t illustrate with crayon.” Possibly you will fight with me that it is similar with Warren Buffet’s wisdom. I agree. But what I realise is Wisdom is wisdom, no one is owner of it. Peter Lynch is that person who made record highest wealth earning mutual fund house with some nonsense Idea. When whole US people are bussy in buying share of high tech solar companies or any Idea which they find hard to digest, like E commerce, he made wealth with car washing companies, dunkin donuts, banks, insurance companies etc. When peoples are selling their shares because of one or two bad performance, he maintains it with saying that ‘best performer stock may take 5 years to perform but it is best performer beyond doubt.’ After Reading Aswath Damodarans ‘Little Book of Valuation’, I believe that P/E is not a good way to evaluate any stock. How you justify the price of Sun Pharma, ONGC, ACC, HUL, Max India, Infosys, IDFC, Tata Steal, Hindalco, NTPC, Idea, Coal India and ZEE entertainment? I don’t agree with Peter Lynch, but after his statement that earnings will make or break any investment, I completely agree with him. And realise that price is not the best way to evaluate any stock. If you are invest ₹ 4000 in penny stock with hope of super fast growth, then it is impossible. But if you invest in TCS, I am sure that it will give you some good returns. One another thing which I like about him is his simple language. He explain it all in very simple way. No show of, nothing. But what I really like about him is what he say. And it is shocking. In his words, ” Don’t follow analysts. Use your investors edge.Your investor’s edge is not something you get from Wall Street experts. It’s something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand.” Agreed with him. Say you like to go in Adlabs Imagica. It is coming with IPO. You know what the are doing. How much it is crowded and when? So as usual you like the ride also. Now the question is ‘are you waiting for report from CRISIL that they give the rating to IPO and then I will buy it. Why you? I told you my example. I have an account in Central Bank of India. When I open an account there is lessno crowed and even after 100 years, the bank is not big. But whatever they are doing with there service and new products is fantastic. That time the share was trading at ₹ 60/share. Now it is near to 100 . and analyst’s are still not referring it. ( I am not saying that buy the share in any of this companies, CHECK THE FUNDAMENTALS BEFORE INVESTING). Another big advise by Peter Lynch to you. “If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” Hard to digest but true in the era of ‘intra day, derivatives, and BTST calls’. According to me, wisdom is something beyond Nations and time. Sometimes during reading I remember Indian events related with his statements. Like look at the next statement. “Time is on your side when you own shares of superior companies”. I remembered L&T, a company which survived 3 tries of acquisition, . If you buy the share @ ₹ 60/share then today you may be happy with the result. Current prise is nearly 1700. Take a look on one another statement and argue with me that it is a statement of Warren Buffet. My answer to you always i s wisdom is wisdom. “The worst thing you can do is invest in companies you know nothing about. Unfortunately, buying stocks on ignorance is still a popular American pastime.” Mr. Lynch Indians are same, too. One another. Take a look of this one where you find that Peter Lynch and Warren Buffet both of them are telling the same thing with different way. “In stocks as in romance, ease of divorce is not a sound basis for commitment. The basic story remains simple and never-ending. Stocks aren’t lottery tickets. There’s a company attached to every share” I still remember when TCS was at ₹ 2000/share, peoples were telling to each other that now there is no growth in it. After some days the same stock was at ?2700/share and recently I found the news that its new target is ?3100/ share. I remember another statement of my great guru.”That’s not to say there’s no such thing as an overvalued market, but there’s no point worrying about it.” Some days before I wrote a post about Nifty. In which I mention Indian mentality about stocks. I was thinking to write that time. But now I remember so here it is Indian mentality and Lynch.. “If you hope to have more money tomorrow than you have today, you’ve got to put a chunk of your assets into stocks. Sooner or later, a portfolio of stocks or stock mutual funds will turn out to be a lot more valuable than a portfolio of bonds or CDs or money-market funds. Because gentlemen who prefer bonds don’t know what they’re missing.You will never find ‘Tenbagger’ with Bonds, CDs, Debenture, and Most favorite in India ‘Fixed Deposits, Postal Savings and Gold.” Many times I confused that he is talking about US peoples or Indian? “There seems to be an unwritten rule on Wall Street: If you don’t understand it, then put your life savings into it. Shun the enterprise around the corner, which can at least be observed, and seek out the one that manufactures an incomprehensible product” Mr. Lynch the reality is same everywhere. If you are not convinced that Investment is eassy, then I have something for you. A class of seventh graders at an American primary school did a social studies project on stocks, the kids had to do their own research and dig up stocks for a paper portfolio. They sent their picks to Lynch, who later invited them to a pizza dinner at the Fidelity executive dining room, illustrating their portfolio with little drawings representing each stock. Lynch just loved this because it illustrates the principle that you should only invest in what you understand, the kids portfolio consisted of toy manufacturers, makers of baseball swap cards, clothing manufacturers and outlets, Playboy Enterprises (a couple of boys chose that one), Coke, and other stocks. With a portfolio notably lacking in glamorous technology ventures and entrepreneurial risk taking they went for solid stocks with excellent profits, their portfolio returned 69.6% against a background of a 26.08% gain in the S&P500 in 1990/91. If it is simple then it is better and this is a statement by Warren buffet, not peter lynch. Both of them are telling same thing. And. Still both of them are saying in the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it. One another statement, This time , I remember Reliance Power and Buffets statement about leverage. “Imagine if you borrowed your parents’ car without permission and ran it into a tree, how much better you’d feel if you were incorporated.” The first thing that will strike new investors as strange is that Lynch’s methods are actually so simple that mostly an amateur could use them entirely unchanged and with the same results. Lynch does not use any gimmicky computer programs, either to pick stocks or optimize the portfolio for volatility. Each and every company invested in by Magellan was considered on its own individual merits, and the managers of Magellan generally did their very best to completely avoid investing in anything that consensus opinion from the average Wall Street analyst declared was a good thing. Lynch sums up his points in Beating the Street with a number of humorous “Peter’s Principles”, most of them I mention here. It is so hard for me to finish it as it is my most favorite subject. So I want to say be invested, stay invested with a thought Of Peter Lynch. “Long-term investing has gotten so popular, it’s easier to admit you’re a crack addict than to admit you’re a short-term investor” Even six to nine month is also ‘long term for some’.
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