You are hereThe final checklist from Peter Lynch -- An excerpt from 'One Up on Wall Street'

The final checklist from Peter Lynch -- An excerpt from 'One Up on Wall Street'


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By Srikorada - Posted on 06 September 2009

The final checklist from Peter Lynch: An excerpt from 'One Up on Wall Street'
‘One Up on Wall Street’ is an amazing read. When I hit the last few chapters I discovered this hidden treasure and could not resist sharing with all the members in our community. So if this is any worthy cause, hope you would benefit from it.
 
Few words before I go to the list itself. This is the one book which explained the power of hidden assets and drag of a bank debt on a balance sheet in such a simple language, you really feel smart after reading the book. Let me explain what I mean: Hidden assets are such as the land on Railroad companies’ balance sheet and oil on gas companies’ balance sheet which is recorded at next to nothing and they are worth an Everest. And, why one should be painfully aware that a company’s debt from banks are just plain killers because they can call any time and take their money on the first sight of trouble. So, pay attention to the notes in the annual reports.
 
With our further due, here I present the excerpt from the text.
 

  • Understand the nature of the companies you own and the specific reasons for holding the stock. (“It is really going up!” does not count)
  • By putting your stock into categories you’ll have a better idea of what to expect from them
  • Big companies have small moves, small companies have big moves
  • Consider the size of a company if you expect it to profit from a specific product
  • Look for small companies that are already profitable and have proven that their concept can be replicated
  • Be suspicious of companies with growth rates of 50 to100 percent a year.
  • Avoid hot stocks in hot industries
  • Distrust diversifications, which usually turn out to be diworseifications
  • Long shots almost never pay off
  • It’s better to miss the first move in a stock and wait to see if a company’s plans are working out
  • People get incredibly valuable fundamental information  from their jobs that may not reach the professionals for months or even years
  • Separate all stock tips from tipper, even if the tipper is very smart, very rich, and his or her last tip went up
  • Some stock tips, especially from the expert in the field, may turn out to be quite valuable. However, people in the paper industry normally give out tips on drug stocks, and people in the health care field never run out of tips on the coming takeovers in the paper industry
  • Invest in simple companies that appear dull, mundane, out of favor, and haven’t caught the fancy of Wall street
  • Moderately fast growers(20-25 percent) in non growth industries are ideal investments
  • Look for companies with niches
  • When purchasing depressed stocks in troubled companies, seek out the ones with the superior financial positions and avoid the ones with loads of bank debt
  • Companies that have no debt can’t go bankrupt
  • Managerial ability may be important, but it’s quite difficult to assess. Base your purchases on the company’s prospects, not on the president’s resume or speaking ability
  • A lot of money can be made when a troubled company turns around
  • Carefully consider the price-earnings ratio. If the stock is grossly over priced, even if everything else goes right, you won’t make any money.
  • Find a story line to follow as a way of monitoring a company’s progress
  • Look for companies that consistently buy back their own shares
  • Study the dividend record of a company over the years and also how its’ earnings have fared in past recessions
  • Look for companies with little or no institutional ownership
  • All else being equal, favor companies in which management has a significant personal investment over companies run by people that benefit only from their salaries.
  • Insider buying is a positive sign, especially when several individuals are buying at once.
  • Devote at least an hour a week to investment research. Adding up your dividends and figuring out your gains and losses doesn’t cout
  • Be patient. Watched stock never boils
  • Buying stocks based on stated book value alone is dangerous and illusory. It’s real value that counts.
  • When in doubt, tune in later
  • Invest at least as much time and effort in choosing a new stock as you would in choosing a new refrigerator.

 

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