The opening statement from the video says it all:
" You shouldn't be intimidated.
Everyone can do well in the stock market.
You have the skill,
you have the intelligence, it doesn't required any education.
All you have to have
is patience, do a little research, you got it.
Don't worry about it,
don't panic. You got it. "
Attached youtube video is taken from Peter Lynch's
"The Stock Shop". (you can purchase it via Amazon.com with this link:
http://www.amazon.com/Stock-Shop-With-Peter-Lynch/dp/B004K7LMGK)
This 55min video provides a very good introduction on how
one should approach an investment idea. The video is simple and straightforward.
The fundamental behind it is very similar to how I
would analyze a company, as I believe it is always good to have a structural
method on looking at an investment. But then again, it is a science looking at
it but an art appreciating it.
Below is some of the key takeaway I gotten out from
watching the video twice and I hope its useful for anyone who seek to be the
next Warren Buffet or Peter Lynch!
Key Highlights
1) Be observant. Sometimes the best
investment ideas is through your personal interaction and experience.
2) Give your investment time to grow. A good
investment takes time to grow.
3) Remember that emotional strength is needed
to withstand market volatility. The key organ here is not the brain but the
stomach. You need to have the stomach for risk and ask yourself what would you
do if the market goes down.
4) Invest in a company with a story. A simple
story is a good investment. Sometimes too complicated one might not be the best
investment because it's just too hard to understand.
5) Research with things you know. If you are
an engineer, look at the devices you used and if it saves you time and money,
it is probably a good stock!
6) You have to understand that markets goes
down. It is the nature of the market.
7) Categorize company into 5 different
categories:
a) Fast
Grower - Most powerful. These companies have the right formula. It will usually
take 5 to 10 years, or at times 30 years to reach its full potential. Thus
there is a lot of time for you to put money into it. Wait till you see
evidence.
b) Slow
Grower - Slow growth is good if you pay a good price for it. Steady growth will
result to steady dividend growth. Raising dividend is a good sign.
c) Cyclical
- They usually make expensive big and long term item investment. Do not try to
time it if you have no intimate market knowledge. Pick a good cyclical company with
good cash flow and low debt.
d) Turnaround
- It is at a very depress situation. You have to check its balance sheet, make sure they have what it takes to
tide through the next 12-24 month. Note you never buy on hope. Buying on hope
is akin gambling. You can buy it when you see evidence that the timing is
there.
e)
Asset play - It is all about the
hidden value of the asset.
8) Usually the smaller a company, the bigger
the potential. Imagine, it will be easy to double your revenue from US$100 million
to US$200 million than doubling it from US$10 billion to US$20 billion.
9) Usually a good company or story will involved:
- Strong growth
- Good research & development (R&D)
- Cost cutting
- New product
- Good brand name
- Good balance sheet
10) P/E is simply the number of year you take
to earn back your investment assuming constant earning power. Rule of thumb, 3
to 5 years is a very good business.
11) Compared P/E with industry or historical.
Remember you can't predict the future but you can learn from the past.
12) Again, you need to be confident about the
story.
13) Good investment story only comes once or
twice a year. Always balance your upside against downside.
