…then take a look at the world’s most famous investors and their strategies.
In our last bulletin, we devoted a lot of space to Warren Buffet. Another bigwig of the financial world – Peter Lynch – has been providing recipes for success on the stock market for decades. His long-standing approach is the opposite of what beginners in the financial market experience today: they buy access to a trading platform, sink into the swamp of information from the Internet, experience their first defeats, buy access to information from analysts, experts, specialists and … according to statistics, 80% of them do not make profits, but losses.
Today’s investors rely on so-called technical analysis (of share prices, for example), fund forecasts and the like, the opinion of an advisor. Lynch, on the other hand, has proven that an ordinary investor who is familiar with products and services can be successful if he invests with discipline and patience.
What assumptions guided our hero when analyzing companies? Lynch believed that the key to success on the stock market was to understand the business rather than blindly following the numbers. For example, going to a shopping center and observing which stores are successful (crowded). His method was based on several main pillars:
① excellent product – a company must provide a product or service of distinctive, inimitable quality;
② scalability – The company’s business model should allow for broad development;
③ overlooked – the company is overlooked by Wall Street for some reason;
④ long-termism – instead of speculating, Lynch invested in companies for years or even decades on the assumption that a good business will turn a profit given enough time.
⑤ empiricism – Lynch avoided complex mathematical models and relied on direct experience and intuition, supported by reliable research.
If this has aroused your interest, consider the following Lynch’s thoughts:
① “professional investors don’t understand the basics. A bunch of software does nothing unless they have done basic homework on companies. They feverishly buy access to services like Bridge, Shark, Bloomberg, First Call, Market Watch instead of spending more time at the mall”
② “When even analysts are fed up with any stock, it’s a sign that it’s time to buy it.”
③ “If I find 10 good stories of companies and they are all equally attractive, I buy all 10 and look forward to these companies growing. It’s like playing 10 games of poker. The third story is doing better, the sixth is weaker, the seventh is stable but has already earned 50%. Then you sell the seventh and buy the third again.”
④ “If the prototype works in Texas, postpone buying stock until the company shows it can make money in Illinois. Will this idea work elsewhere? That’s exactly the question I forgot to ask the founders.”
⑤ “You need to invest in multiple companies because of the five you choose, one will be wonderful, one will be very bad and three will be average.”
⑥ “You can lose money quickly, but you need a lot of time to recoup the losses.”
Warren Buffett said of Peter Lynch: “Well, I know Peter, I like him personally, and of course he has a great track record. Of course we have a lot in common, but there are also some differences. Peter of course loves to diversify a lot more than I do. I mean, he has more companies than company names that I can remember. But this is Peter and I… you know, I’ve said in the past that there’s more than one way to heaven in investing and that there’s no one true religion in this space, but there are some very useful religions. Peter has one, and I think … there’s a lot of overlap, but I wouldn’t do as well if I tried to do it the way Peter does, and he probably wouldn’t do as well if he tried to do it the same way I do.”
You have to find your own way. Both to invest correctly and to understand world events objectively. Gefira will help you with this.
