Mr. Peter Lynch is one of the best stock picker in this world. His philosophy about stock is very different from others. Its easy and sometime looks like impossible but I found what he mention is right. Here are some attributes of his philosophy of investing of how to find a good stock for investing.
- It sounds dull or Even Better Ridiculous : If it is doing something ridiculous and simple. But the name is shiny then peoples will start buying it. Analyst start tracking it. If it will happen then company possibly will not available at discount. Peter Lynch gave example is Pep boys – Manny Moe and Jack. Possibly there are many names. Try to find. You will realise that most of them are available at discount. TTK prestige is an Indian example.
- It does something dull : If the business is dull then possibly few people will think about it. Simple thing. If I am not wrong sharda Cropchem is an example. The philosophy behind it is most peoples are not interested to check annual report, balance sheet, income statement, Cash flow etc. Peter Lynch give name of Crown, Cork and Seal. When is the bad time for companies like this? Never. We always need bottle caps and cans. Business is making cans and bottle caps. It is a Good business. But market ignore it. Mr Lynch mentioned it in his word, “You won’t see an interview with the CEO of this company in time magazine. Just imagine if they are not there what is our life? Jagaran prakashan. Business is Printing and publishing Newspapers. Whenever businesses are going to launch any new project, they need to give the advertisement in newspapers. In india, it is Boring but profitable.
- It does something disagreeable : Think any business about which you hardly think about. Like cleaning a car. Dry clean clothes. Best example if I am not wrong is Maxwell Industries. The business is Making Underwear. Disagreeable but profitable. Mr Lynch gave example of Safety Kleen, a company which clean gas stations and petrochemical plant.
- It’s a spinoff : The reason here is very simple to understand. It was a part of a company. But the start making so much profit that parent decide to make it different. Examples are many. Pixar, ICICI bank, Marico kaya, Max industry. Sometime the reasons are bad also. Like in the case of AT&T. All we know is that it changed the world drastically. Most of the time the reason being it is the expertise of that business.
- The institution don’t own it and the analyst don’t follow it : Whenever they start doing so. Individual investor start running behind it. Here you supposed to study hard. But if you find it. Then it will prove one of the best example. When ever institution enter into it the movement is high in the stock. Then people’s forget the fundamentals and only start checking which institution buy stake in it. Then it not the fundamentals but Goodwill of that institution. In Mr Lynch’s word, “when any company tell me that last analyst showed up was three years back. I can hardly contain my enthusiasm”. If analyst is not shown from last some times.
- Rumers abound like toxic waste, mafia etc : In simple word, whenever you got info about weast management company, it will be one of the best investment. Reason is weast is part of human life. So the business will last long. Very few people are interested to come in this business. So less competition. Most of the time technology is not changing vastly in this business that one fine morning you will realise that your business is in no use. Mafias and terrorist groups need the money. So they will find the way to earn money for that. Possibly they will develop it. It is good actually.
- Something depressing about it like its work : I don’t found Indian companies here, but Mr. Lynch have one. Service corporation International. A company which is in business of burials. It is impossible to think that after some time humans will never die. The business is strong. Mr Lynch also mention that they have assets for it that is land. Market still ignored it. But as per Peter Lynch, it was one of his best performer. He mention the asset base. 461 funeral parlors, 121 Cemeteries, 76 Flower shops, 21 Funeral product and supply manufacturing centers, 3 Casket distribution Centers. Fundamentals are good. So go ahead. In India, hospital weast management is the example. I don’t know the company name.
- Its a no growth industry. Hard to think but true. If you are interesting to make money with IT, Pharma then possibly you have Supernormal profit. But if you have big and huge profit, then think outside of box. Service Corporation International is one example. Another is in India, Tube industry. A company which makes Still frame works for Bicycle. Natural rubber is if dull then somewhat no growth also. But not now. Madras Rubber Factory. In another word MRF. India’s most expensive stock. Plastic is another example. But just check and you will realise that one of the best company, Max India is in this business.
- Its got a niche : If it is a niche then possibly it is a monopoly. All monopoly are profitable. Mr Lynch give good example of Rock pit. He also mention that Owning a rock pit is safer than Owning a jewelry Business. Reason is demand. It is big. But it is impossible for another one to come into your market and supply it with low cost. As Nobody else with compete with it, because the trucking bill possibly eat his profit. In another simple word, Peter Lynch explain the paradox . mix rock, sand gravel. It is worthless mixture. $3 per ton is a rate.(As per the writer) Possibly you will get milk shake or juice with this price. But still it will give you good profit as less competition. Indian example is Just Dial or Jubiliant Food Work.
- People have to keep buying it : FMCG products are perfect example. HUL, Unilever limited. Simple business but profitable all because of peoples are supposed to keep buying big. Wall Mart, Proctor & Gamble. Recently warren Buffett also buy Duracell. The reason is also same. The compa which is in business to sell Tea or coffee.
- USER OF TECHNOLOGY. : If you are interested to buy Facebook and Google’s share. Then you are wrong. This are companies which are facing one big problem is that the technology is always changing. You supposed to update yourself. It need money and the return is less. Check out with Google. You will realise what I am talking. So bet on the handset makers. Best example is your fevorite. buying Here super markets are better chance again as they are not developing the technology. They are using it.
- Insiders are buyers in it. If you realised that Promoters are buying. Buy it. The reason is promoters and management know the business more than you. They are buying stake means the business is expected to perform better in future.
- The company is buying back shares : In simple words, buyback is the way to make money with least cost. After buyback, next time few peoples are there to claim their part. It actually help company as most time after buyback price of the stock is going high. Best example is Apple.
Going to end this post with a note. CHECK THE FUNDAMENTALS BEFORE INVESTING.
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