Thoughts From Literature — November 2022

One up on Wall Street by Peter Lynch

Not much of an intro this month. November was busy, December will be a crunch. Still making time to smell the flowers but they're all frozen by me.

Summary

Peter Lynch is a legendary investor. He’s up there with Warren Buffett as one of the greatest of the 20th century. He is known for being the manager of the Magellan Fund at Fidelity.

As the manager of the Magellan Fund between 1977 and 1990, Lynch averaged a 29% annual return, more than double the S&P 500 and making it the best-performing mutual fund in the world. During his tenure, assets under management increased from $18 million to $14 billion.

His book is written for the average investor. Lynch explains the key to making money in the stock market is sticking with what you know. Instead of investing in high-tech companies that you read about online, look into what you know. That could be a new store that opened up near you or a system or vendor your company recently started working with.

Value can be found in everyday life before professional investors get a hold of it.

There were numerous concepts from Lynch’s book that are helpful for investing, and even some that can be applied to other facets of life.

Quotes & Concepts

1.

“The same couple that spends the weekend searching for the best deal on airfares to London buys 500 shares of KLM without having spent five minutes learning about the company”

This one hit home. I’m very frugal with my money. I’ll be the first to admit it — I’ll even brag about it. So I’m always committing extra time to look for deals. But there have been occurrences I’ve spent very little time researching a stock before putting money into it. All I needed was a few articles telling me it was a good purchase or the next hot stock. Luckily, I’ve learned since then and no longer invest without due diligence. But it was an expensive lesson to learn.

Moral of the story: not every investment is a good one. Don’t think you are helping yourself just by investing, it needs to be a good investment.

2.

One of the indicators that Lynch raved about numerous times in his book is how many insiders are purchasing the company’s stock. Insiders only buy when they think the stock is undervalued and will go up. It may be difficult to find when insiders purchase shares in their company, but the percentage of holding between insiders, institutions, and individual investors can be found easily.

3.

The older I get, the more attentive I am about interest rates. A lot has been discussed recently about the increased federal funds rate, and rightfully so. In the 80’s they were in the teens. In the 2010s, they were near zero. Historically though, they’ve been around 4%. That is what we will likely see from the Federal Reserve for an extended duration.

4.

Having not lived through the 80s, they seemed like a decent time. Until Lynch started listing all the issues of the time and how every issue was destroying society. Only to point out that this is how the media and humans behave. Every issue appears catastrophic, yet things always end up just fine.

The next time someone acts as though the world has never been worse off than today or that things can’t get any worse, don’t even entertain them.

Here are a few other quotes I found entertaining:

• “October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” — Mark Twain
• “Gentlemen prefer bonds.” — Andrew Mellon
• “…the floors were faded linoleum, and the office furniture was shabbier than stuff I sat on in the Army. Now there’s a company with the right priorities.”