Peter Lynch Philosophy - Understanding Your Investments

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01. so Peter your investing philosophy is often summed up as buy what you know and there's some truth to that and it's also often way oversimplified can you explain what you did mean by that and then what you didn't mean well I it bothers me that people are very dangerous when they invest this word play the market that's a dangerous term but if you do some work do some research know what you own look at the research look at the balance sheet you if you could add a and get fairly close to 16 and find out this company has lots of debt no cash they're in trouble you shouldn't own it so a little bit of research people are careful they buy a refrigerator careful they take a vacation and they they'll put five $110,000 some stock to he on the bus or the party that's dangerous So when you say buy what you know you also thought that the regular investor might be able to get an inside Advantage by sticking to an industry he's familiar with or seeing something that she realizes is a great product I'm imagine if you're were in a mall the last 50 years you would seen Gap when it was hot you would have seen Limon when was hot we seen it was not hot we seen when they were starting people weren't excited about Gap anymore or or then you do some research say well gee there's a lot of limited stores but we're only at 20 you know they can go to 400 so you you you see a company I did really well with dunan donut it's a local company I do well with Stop and Shop but people can see that this are really some people showing up or just the Sunglass Hut no one's there anymore so I mean that's research that's fundamentals so in you don't leave the mall though and buy that day you you have to do some more work that's the important Point yeah so today uh there's so much information everywhere information overload does that make it harder for active investors the indexers say everyone's got access to the same information at the same time you can't beat the market well the way you beat the index is you you avoid the stocks to go down you avoid the steel companies and the oil companies and Sears and Penny and where the companies are deteriorate I mean companies are Dynamic the behind every stock there's a company these are not lottery tickets so you're trying to find the companies within the that are doing better they're going from crappy to semi crappy to good that might take a couple years or they're going to grow for a long time and you're trying to avoid the companies that are going sou that's how you beat them or you find some companies outside the sp00 that are that are great companies Car Act wasn't not in the S 500 that went up 200 fold so a lot of that enter in a lot of their Great Performances before they go in now a lot of people when they're lucky enough or smart enough to get a company that's going up they then they take their profits and then you made the case in a book that you should actually hang in there with the really great stocks and you even got a call from Warren Buffett as a result yeah 1989 I'm at home in the phone rings and those one of my friends but one of my daughters he was six-year-old Annie picked up and said see guiss there's a Mr Buffett online I said this got to be a joke I pick it up and this Warren buffer we're from Nebraska you know I read your book my airports do and two we I use a line he said that all about 7 seconds and I said that's great I'd love to do it what you what's the line he said I love this it's been waiting to do this when you sell your great companies and add to the losers it's like water in the weeds and cutting the flowers he said I want to put it in he said if you ever come to Nebraska you don't call me your name will be mud all over Nebraska so did he call him oh yeah I said several times we play British together we've had several meetings great another point you've made and this is I think particularly relevant 10 years into a bull mark Market is that I think you said more money has been lost anticipating a downturn than actually in the downturn can you explain well obviously the Market's Market's gone up tfold since I stopped running mellan so you make more money in the upside the market going be a lot higher than 10 years from now 20 years from now 30 years from now trying to predict the market is really a waste I don't know what it's going to do it can go down when I ran Mel in 13 years declined 10% or more nine times the market wow I had a perfect record I went down more than 10% every time when the market went down I went down more but over the long term the upside is more than the downside so you're going to say yourself do I need the money in the next month do I need the money in the next year do I have kids going to college have a wedding coming up then you're a bad investor you if if you can keep putting money in you have 5 10 15 20 25 year you should do well one thing we're thinking a lot about at Barons is the secular changes we're seeing in the market where there's so much disruption that we wonder if certain Industries they may be cheap and they may just keep on getting cheaper I mean retail would be an obvious one in some cases victims of Amazon but even the Auto industry very low price earnings mul multiples maybe the market sees something do you think secular changes is moving more rapidly now than it did in the 80s when you were running money no I saw the textile industry deteriorate I I was recommend all the stocks the way down I saw the sh industry go away Industries are Industries can go from terrific to terrible there a great expression that Tex industry that helped me a lot textile industry yeah it's always darkest before pitch black just you think things are terrible they get terrible squared I mean so just because industry is getting bad that's not a reason invest wait for things to get better because again some of you might be involved in the ceing may be involved in Coal they might involved in iron or they might involved in Plastics they'll see it aluminum pick up before I do so you might that's a cyclical turnaround that might last two or three years you might see way before Wall Street sees it one broad air that you've recently said might be interesting is energy and it's very unloved on Wall Street right now uh what do you seeing there well the difference between a glut right now and a shortes it's like 1 million barrels a day you know the world consumes 100 million barrels a day 1 million each way so if the economy stays okay and these Shale Wells you do a th000 barrels a day the first month year later the 300 wow then they're 150 big drop off it's a real treadmill and right now there's no private Equity money there's no IPOs there's no bond market the banks want out private Equity wants out Shale is going to slow down so these people think that sh is going to keep growing two three million barrels a day we've gone from 5 million barrels in the US producing to 12 and a half people think that's going to continue I don't believe it will Peter Lyn thank you very much thank you