One Up On Wall Street : How To Use What You Already Know To Make Money In The Market by Peter Lynch

How to invest with what you already know ?

Investor should ignore up and down of the market. When yo sell in desperate, you always sell cheap.

Don’t let nuisance ruin a good profit

Don’t let nuisance ruin vocation

Don’t travel abroad when you ar light on cash, so you wont miss opportunities.

Rule : Never listen to professional

Dump money is only dump when it listen to smart money. Small investor tend to be pessimistic and optimistic at precisely wrong time.

A lots of investor sit around and debate if, stock is going up. As if the financial muse will give them the answer, instead of checking the company.

Personality quantities to succeed in stock: Patience, self reliance, common sense, tolerance of pain, open minded, detachment, persistence, humility, flexibility willingness to do independent research, equal wiliness to admit mistakes, ability to resist good point, also you have to able to make decision without complete and prefect information. Resist human nature and “gut feeling”.

We are looking backward for signs of upcoming menace, but that’s only if we can decide what the upcoming menace is. So often we struggle to pick a winning stock when all the time a winning stock has been struggling to pick us.

There are 6 categorizes of stock :

  1. Slow growers
  2. Stalwarts
  3. Fast growers
  4. Cyclical
  5. Asset play
  6. Turn-around
  1. Slower Growers : Generous / regular dividend
  2. Stalwarts : Taking profit readily, good protection during recession / hard times
  3. Fast growers : Small, aggressive new enterprise grow 20-25% year
  4. Cyclical : Sales and profit rise and fall in regular if not completely predictable , timing is everything is cyclical
  5. Turn around : After edge of bankruptcy. Potential fatalities
  6. Asset play : Sitting on something valuable

The simple the business, the better. The best company is any idiot can run the business as one characteristic of prefect company

  1. It sounds dull, or ridiculous
  2. It does something dull
  3. It does something disagreeable
  4. Its a spinoff
  5. Analyst don’t follow
  6. Rumor around it
  7. Something depressing about it
  8. No growth / industry
  9. It got a niche
  10. People have to keep buying it
  11. User of technology
  12. Company buy back shares

If I could avoid a single stock, it would be the hottest stock in hottest industry. If i must acquire something, i would prefer it to be a related business. IPO of brand – New enterprise are very risky as there is so little to go on.

Analyzing a company stock on basis of earning/asset is no different from analyze a local laundry. A share of stock is not a lottery ticket, i ts part of ownership of a business.

P/E ration can be through as numbers of year it will take the company to earn back amount of your initial investment. Try to avoid stock with excessively high PE.

After P/E, learn the ‘story” of the company. Before buying a stock, i like to be able to give a 2 minute monologue that come to the reason I am interested in it. What has to happen for the company to succeed and the pitfall stand in its path. Success, along what turn a local taco joint into taco bell, but there is no point buying the stock until the company has proven the cloning works.

If you can’t imagine how a company representative could get that rich, chances are you are right. Wandering through stories, testing things as fundamental strategy. Cash socking, long term debt reduce sign of prosperity.

Few Things to consider when buying stocks

% of sales – what the product means to the company

Price / earning ratio – Growth rate vs P/E ratio, if GR >PE, its a good bargain, if p/E half the growth rat is very positive, twice the growth is very negative

Cash position

Debt factor, what is debt vs equity, debt determine which company will suffer / bankrupt in crisis

Dividend – The more cash build up on treasury, the greater pressure to pass it away. Small company who don’t pay dividend are likely to grow because plowing many into expansion

Book value – Stated book value bear little relationship to actual wealth of company. The closer you get to a finished product, less predictable the re-sale value. Overvalue of asset in balance sheet.

Cash flow

Inventories – when inventories grow faster than sale, its a red flag

Pension plans

Growth ratio

Profit after tax

Every few months its worthwhile to recheck company status. Only by sticking by a strategy through good years and bad you will maximize long terms gains.

IF you cant convince yourself when i am down 255, i am a buyer and banish the fatal through “when i am done 25% i am a seller “. Then you will never make decent profit in stock.

12 Silly things people say about stock price

  1. It’s going down too much already, it cant go much lower – no rule to say how low a stock can go in principle
  2. You can always tell when a stock hit bottom. Try to catch bottoms is like trying to catch a falling knife
  3. If its going this high already, how can it possibly go higher – if the stay still good, earning continue to improve
  4. Its only $3 a share, what can I lose ? Whether a stock cost $50 or $1, if it go zero you will lose everything
  5. Eventually they always come back
  6. It is always darkest before the dawn – Human tendency to believe things have got bad cant get any worse
  7. When it rebound to $10, i will sell
  8. What we worry ? Conservative stock don’t fluctuate much. Company are dynamic, prospect change. These simply isn’t a stock you can own that you afford to ignored.
  9. It take too long for anything ever happen. When fundamental are promising patience is often rewarded.
  10. Look at all the money i have lost – i didn’t buy it. Regarding somebody else gain is your own personal loss is not a productive attitude.
  11. I missed that one, i will catch the next one
  12. The stock go up, i must be right

Large potential return is attractive to small investor. who are dissatisfied to get rich slow, instead thy opt for get poor quick.

All the best on your return this year !

Until next time

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