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What if I told you every stock from a small cafe to Apple can be categorized in just six categories? Yeah. So hello everyone. I am Tamandep and today we are going to understand how the legendary investor Mr. Peter Lynch categorizes the entire stock market into just six stocks. So stay till the end of the video to have your understanding of investment completely changed.
So here we go. So types of strokes. These six categories let's start with the first the slow growers. Think of them as the big redwood trees of the corporate world. These are nearly saturated companies uh who are quite stable example would be Coca-Cola. Coca-Cola, so as we can see Coca-Cola grew by 32% in last 5 years this would be what 5.7% per year right see it does not even beat the inflation of India it hardly beats inflation of most countries so why would we even want to invest in these stocks but before that how many of you thought it would be 6.4% per year.
Seeing 32% for 5 years. Yeah. 32 / 5 is 6.4. Right? So you are wrong if you thought that. See this is compounded annually. Right? So what does that mean? Let me tell you with an example. Let's say you had 100 rupees and in first year your 100 rupees became 102 rupees. That's good 2% return. And in the next year they became 104 rupees.
So the return for first year is 2%. Two rupees grew over 100. But the return of the second year is 2 rupees for 102 rupees. Yeah it's less than 2%. So the return of two years is 4% but the average return per annum is less than 2%. Isn't it? So how do we actually calculate here? Look here we use the formula of compound interest right.
So amount is equal to principle into 1 + rate of return over 100 to the power n means number of the uh time periods that you invested it for. For 6 years if the time period is 2 years n would be three. For 6 years if the time period would be 1 year n would be 6. So in here we have an time period as 5 years and we want to calculate for 1 year right.
So the final amount is same right? So P + 1 upon R5, R5 return for 5 years upon 100 to the power 1 right will be equal to P into 1 + R by 100 to ^ 5 R here is return per year average return per year so bear with me for this calculation the end result is rather good and it would really help you okay so for easing our calculation let's say one upon R by 100 to be 5.
Okay. So, P into Y ^ 5 P into Y ^ 5 is equal to P into 1 + R5 by 100. Yeah. So, P cancels with P. So, Y ^ 5 is equal to 1 + R5 by 100. Right. It's basic calculation, right? Fifth standard maths. So uh the y gets turned into 1 + r5 upon 100 ^ 1x 5 power 5 here comes as 1x 5. So those who don't understand what power 1x 5 means if it's power 1x2 it means square root it if it's power 1x 3 it means cube root.
If it's power 1x 5 it's five root right in layman's term right? So this is an important formula remember this. And y = 1 + r by 100. So r becomes 100 into y - 1. Let's do an oral calculation shall we? Just not exact calculation. Let's just get an estimate. So it's 32% return. So r upon 100 is 32 nearly right.
It's 31.94. So 32 1 + 32 1.32 1.3 to the power 1/5. That's how you will calculate here. Fine. Yeah, that's how you will calculate here. So but why even invest in such companies? Coming back to the main question, why do we want to invest here? It's a loss of money especially in India where it does not even beat inflation.
See the answer is dividends. Right? These companies are nearly saturated. So they don't really have to invest their profit back into the company that much. So they give back their profit to their investors as dividends. So how much dividend does Coca-Cola give? It gives 3.04% peranom. Now some might not like it.
They want more money. Some might like it because it's easy money. It's up to you. But that's why people invest in such companies. Going to the next category now. The next category is stol right. So this would be interesting stolip stocks with a steady rate of growth. Think 10 to 12%. So example would be Toyota.
See let's see Toyota. So Toyota gave us return of 108% in last five years. 108%. How much will it be perom? Let's do the calculation, shall we? So, here are the formulas. 1 + R5 R5 is 108. 108 upon 100 1.08 1.08 + 1 2.08 2.08 to the^ 1x 5 Let's do the calculation. 2 08 to the power 1x 5 1x 5 is2 right which will be 1.157 what is 1.157 it's y it's y so r will be 100 into y - 1 1.157 - 1.157.157 into 100 15.7 so Toyota gave us on an average 15.7% return peranom.
See, it's a blue chip stock, right? Toyota is good. These are stable stocks. So, not only do they give us a steady return, they also provide a good cushioning when the market is down. So, your loss during the low day or recession won't be that much because of these stocks. Always look out for such stocks.
Yeah. So, moving on to the next category now. The most exciting stocks the fast growers here where you will find your potential 10-baggers. These companies provide a great growth. See more than 20%. Right? And but they are usually young companies. Think of as young Nvidia. Those who invested in young Nvidia now are millionaires.
Isn't that great? But be warned. These are high-risk stocks. There are hundreds of companies who could not become Nvidia. Maybe thousands of them. So always be careful while investing in those right an example would be motor right these are related to Royal Enfield for those who don't know. So they gave us 214% for last 5 years I'll let you do the calculation on your own if you want to do that for practice pause here the average return would be 25.7% peranom see it's good it's really good if you remember in one of the previous videos I told you the great hedge funding company DE Shaw gave you about 18% uh return and if I remember correctly then 2024 right and it's beating them by a large 25.7% return it's beautiful but these are high risk that's the issue here be careful right you have been warned moving on to the next category cyclical oh we are finally moving towards the lesserk known categories, right?
So these are the companies whose stock move in a rather predictable manner, right? Their profit, their loss is rather predictable. So usually, see guys, usually I'm partial towards the long-term investment. But these specific stocks, they work beautifully in short-term investment. Let me show you with an example.
Ford Motors, right? Ford Motors is a good example of the cyclical. These are also usually blue chip stocks. So see here up down up up down up down. But that's not where you actually invest. Just think of it. See we are in a big recession. Let's say we are in a big recession. The economy is in gutters.
But you know Ford Motor will survive that. Don't you? Ford Motor will probably survive that. So that's when you invest in these stocks. Let's see with an example. Yeah. So see here in 2008 in 2008 recession that lasted from 2008 to 2009, right? The stock price fell down to 1.8 USD. 1.8 USD. That's really low.
But later when it survived, it came to 18.27%. How beautiful is that, isn't it? It's so beautiful. A 10 beggger from a blue chip stock. It's beyond impressive. Always look out for these stocks during recession. Yeah. And always diversify, right? Does not put your all the money in just one stock. Diversify it.
But these are really good for recession time, right? So that's where my love for these stocks come from. And when I say short-term, it doesn't really mean weekly or daily. If an investment is less than a few years, like less than 3 years or two years, then it's a short-term investment. Let's move on to the next stock, the turnarounds.
Who do not like a comeback story, right? But these are unpredictable. Nevertheless, think of Apple in 1990s. See what a comeback they made, right? Similarly, let's give an example. Let's say General Electrica, General Electric and Co. See, they were down, beaten, left to die in these stocks. The issue is not with the I mean issue is there in their numbers, but the main thing is will they be able to fix their internal challenges, right?
So, if they are able to do that, they come back up. See General Electrica was such low in 2020 but now General Electric co is nearly reached their all-time high. How good is that? Right? This so for such stocks you really need to keep your mind into the newspapers, the news uh newsletters, economics generals.
These are only valuable to you if you read those. So always research properly. Right. Moving on to the final category, the asset place. See these are the companies who have a large amount of asset under them. Maybe cash, maybe real estate, maybe patents, maybe a beautiful product but are a bit overlooked by the market.
These usually rise because they have something sold under them. So always look out for this. An example would be Indian Hotels Company Limited. Even though in the recent time they have been looked out by the market but still it's not to what they are capable of right so how much does Indian hotel company limited those who don't know it's actually related to the Tata group and have hotels like Taj Mahal under them right so how much does asset does Indian hotel company have they have 183.7 billion rupees under them It's a big amount.
Isn't that just beautiful? Such companies are always safe investments compared to the other stocks. Okay. So guys, there you have it. All the six type of stocks. But we warned stocks can change their categories. Actually, it happens more often than what you might realize. Let's go back to our first example, Coca-Cola.
Yeah, see Coca-Cola a beautiful stock, a slow grower, right? But if we go to the max and see its entire history, see here, initially it was a fast grower, right? In its early phase, it was a fast grower. Then it became cyclical. cyclical here then slow grow maybe store for a bit then finally slow grower.
See companies change their sto they change their categories. So always be careful of it. Yeah. So what exactly is the takeaway? So the takeaway from this video is that can you categorize the stock before investing? If you can categorize your stock before investing in those, you can know what category they fall in, what story they tell you, and what can you expect from their stock price in the future.
And it would improve your investment by quite a bit. So that's it for today, guys. Bye.
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