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change for the portfolio manager for Magellan fund at Fidelity Investments and over the time he managed to achieve Stellar returns for the fund to run this portfolio for 13 years and when he finally decided to retire at only age of 46. what is worth noting is that when he took over assets under management were about 18 million dollars and through that amount to over 13 billion dollars what's interesting is the fact that when he left Magellan portfolio had about 1 000 individual stocks if you watched previous videos about Terry Smith or Warren Buffett you might have noticed that they run pretty concentrated portfolios how many good ideas can you get but Peter Lynch certainly didn't lack good ideas as there was a saying that there was no stock that he didn't like when he saw a reputation in certain industry he sometimes didn't even try to predict the next winner he would simply buy dozens of companies in that specific industry Peter Lynch similarly to other great Capital allocators we covered doesn't hesitate to share his knowledge in fact he's an offer of three books that cover investing first one is Learn to Earn which might be considered entry-level Guide to Investing and with his easy to understand language pretty much anyone can pick this book as its first choice I'm not sure it's that helpful for more advanced investors as it covers pretty basic stuff but the next one is really full of nuggets of wisdom and Concepts that I am sure will make a better investor out of you this book is called one up on Wall Street and I'm sure you will benefit from it no matter how advanced into investing you are first lesson is to know what you own which sounds close to Buffett's circle of competence well it might sound obvious but it's not only that you understand what is the product or service sold by the company but rather if you understand the economics and root causes that shape the industry for example you might understand how does a computer work but do you understand factors that determine success in the industry some of Lynch winners are stocks like Philip Morris Fannie Mae Ford or Volvo so we have examples of cigarettes financials and cars no Microsoft Apple IBM inside this next lesson I find particularly interesting Lynch recommends classifying your stocks into categories and the first one is fast Growers as the name suggests are the companies that grow their earnings rapidly usually it's more than 15 percent yearly those don't have to be hard tech companies with groundbreaking patents promising to disrupt the world we live in those might be simple products that customers seem to love and are willing to pay for Lynch advices look for small companies that are already profitable and have proven that their concept can be replicated but he also warns be suspicious of companies with growth rates of 50 to 100 percent a year the funny example that offer gives is an house approach and why I find it funny is because company was classified as fast grower by Lynch and it has been struggling pretty recently and it was struggling a lot but he says that companies go through different categories and they don't have to stay in the same category and you have a perfect example the next category are stalwarts those still grow but this is the growth is not as fast as fast Growers it's somewhere in range of 5 to 15 percent per year but we need to note that those would be rather bigger companies that simply cannot grow that fast examples of those are well-known Brands such as Coca-Cola Proctor and Gamble or Coldplay we talked about 80s here so Buffett's purchase of Coca-Cola would be classified as a purchase of stalard in Lynch's classification it's also worth noting that company doesn't have to necessarily increase number of installed open hundreds of new shops to grow as for example Philip Morris sells cigarettes and back then they didn't innovate with new generation heated tobacco they simply had great brands that smokers knew and enjoyed they could focus on cutting costs and improving their margins to enjoy good growth Lynch recommends skipping few Star Wars in your portfolio for recession as they tend to perform better during such periods and I would also note that the Lynch as investment manager had to protect his portfolio in in some manner from huge downside as investors would immediately start with drawing their funds third category is slow growth if company grows EPS for less than five percent annually it's a slow grower those are big companies which have lost their way for dynamic growth these are not bought for growth but rather for stable dividend checks sooner or later every growing industry that was considered to be fast grower might slow down and belong to this category this happened for example to Electric utilities in the 1950s and 60s as people were buying large refrigerators or air conditioners and their electric bills raised quickly Electric utilities were considered high growth but when costs of energy skyrocketed in the 1970s people paid more attention to conserving energy and Industrial lost its fire keep that in mind before investing in the next hot industry as they might share fate of electric utilities that's similar with internet companies where biggest providers such as atat and Verizon are struggling to grow and the fourth category is turnarounds those are no Growers on the contrary those companies might have actually shrunk significantly and Lynch calls them potential fatalities those companies once might have even belonged to fast Growers but some problems occurred and now this one's great stories are coming to an end usually management doesn't just sit and waits patiently for the Titanic to fall they rather Implement some sort of a plan to to save the ship offer gives the example of Lockheed which in 1980 had quite profitable division of defense that earned 805 PPS but it's commercial deviation has lost 6.54 eps so in total they earned why Point 1.5 eps this was caused by L dash 10113 star passenger jet which was losing against its competition and losers were persistent so management decided to give up on the Jet and wrote it off in 1982 defense segment earned earned 10.78 EPS but there was no commercial Aviation losses so from 1.5 dollars of eps in 1980s two years later they managed to earn 10.78 dollars stock followed and you could have made four times your money in only two years this shows that there is a lot of money to be made in turnarounds fifth category are cyclicals those are companies that their earnings are heavily dependent on market conditions of specific industry of course there's no company that lives in a vacuum and is prone to economy but some goods are less likely to be bought in a recession let's take for example dog food even if the economy is doing not so well and you need to tighten your belt you still need to fit your pets on the other hand you can postpone changing your vehicle for a year or two as long as it's working finally things deteriorate and you will need to buy another one so it showed that Rejuvenation will happen it's just not so obvious when and this is the whole trick in buying cyclicals and making money out of them you simply need to time them right in general they will lose more market value in a recession but they will rebound faster than Star Wars this is where a lot of investors make mistakes because a lot of cyclicals are well known big companies such as Ford for example one might assume that the company that big with long history of achievements is a safe bet but Fort might lose even 80 percent in recession just like it happened in the 90s in the 80s typical cyclical Industries are automotive Airline chemical steel tires companies with commodities and since the world has changed from 1989 I would also add semiconductors to that list one specific thing to this category is that you might do way better than Wall Street if you are Insider for example if you are a car salesman you will have an edge and my and that might be all you need the last category is asset play this is a company that possesses something valuable but for some reason investing Community has overlooked that it might be as simple as pile of cash for example net cash per share is greater than price of stock but with all the screening tools nowadays probably it would be hard to miss occasion like that so maybe it would be real estate that you know it's worth more than price of stock this happened probably less now than it did back then but it still might happen maybe you have an edge you know that area and you can safely say that company has something valuable it happened with Pebble Beach which had market cap of 25 million dollars in 1976.
main assets of this company was a hotel two golf courses 2.700 Acres of forest and Monterey Peninsula and it happened to have a gravel bit the Scrabble beat has been sold for 30 million in 1979 which means investors could get paid to own all the other assets we have 13 signs of a great stock by Peter Lynch one it sounds dull or even better ridiculous Peter Lynch loves companies with names that doesn't sound exciting forget Tesla look for names like Bob Evans 2.
it does something dull it's not only name that should be dull the activity in which company operates shouldn't be that exciting better Lynch gives an example of a company that processes coupons that used to be handed in grocery stores that enjoyed a terrific run from four dollars to 33. it sounds logical to me as one of my fastest winners in investing career was a company selling suitcases free it does something disagreeable I think that this might be more important especially in age of ESG Investments people nowadays are generally more aware of negative health effects of smoking tobacco but this is where opportunity arises with products that offer more healthy way of consuming tobacco four it's a spin-off spin-offs are companies that used to be part of another company but management decided to take it out as another public company this might be great opportunity because parent company doesn't want its spin-off to fail that would attract bad publicity therefore those companies have strong balance sheets and management that is free to run the company their way five it's not owned by institutions and analysts don't follow it maybe the companies to small or insignificant so it doesn't have professional coverage but this is where being a small investor comes in handy imagine tiny companion with few million dollars of market cap and small liquidity for huge institutions even buying out a whole company doesn't move the needle 6.
the rumors around it it's related to Mafia or toxic waste it makes up for one of the perfect stocks for Lynch Waste Management I mean I have never even met a student at business school who said that he wants to start his career in Waste Management it's just not exciting but might be very rewarding 7.
there's something depressing about it it doesn't have to necessarily mean that company produces something that is harmful but rather have unpleasant connotations for example funeral house is not a place we think about on a daily basis but might make up for a great investment it's a no growth industry and in in that case investing in a great industry doesn't necessarily mean you will get great investment returns nine it's got a niche Peter Lynch refers in that point to another great investor Warren Buffett and attributes part of his investing success to investing in a business Niche such as for example newspapers big newspapers back in the days simply got no competition but that wasn't the case with Berkshire Hathaway itself which was textile business selling pretty much commodities people have to keep buying it it would come back to the example I gave you earlier on with the pet food if you decide to adopt a pet you are responsible to take care of it and feed it so no matter the situation in economy you have to buy pet food it's different with a car which in most cases you can postpone 11.
it's a user of Technology Lynn says why would you invest in a company that produces computers when you can invest in a company that benefits from technology such as ADP I won't spoil the phone and tell you how good you would do by following this advice you can do this yourself 12. the Insiders are buying it's always a good sign that people related to the company buy stock they know how the company is doing they know Industries so probably they expect that companies going to do well 13.
companies buying packets on shares it's kind of similar with the Insiders but in that case management decides to use companies funds as they think it's best use of companies Capital it might suggest that companies undervalued but don't take it for granted I honestly believe that there's tons of knowledge in Lynch's book one up on Wall Street it's one of the best investing books from one of the greatest investors of all time and don't be scared about how big his portfolio was there's a lot of stocks that he simply bought to have sort of tune in later list use as an individual investor can own as many stocks as you want or as few as you want Lynch couldn't have more than more than five percent of his investment funds in one stock but you don't have the same restrictions hope you enjoyed the video learned something and please stay tuned for the next video goodbye
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