|
Peter Lynch is one of the world greatest investor beyond the legendary Warren Buffet .He was a fund manager for Fidelity Magellan Fund from 1977 to 1990 and then he resigned from the fund and retired from his career .In 1977 ,this fund had $18 million in assets .But when he quitted his job the fund had grown to more than $14 billion in assets with more than 1,000 individual stock positions. So he had achieved an annual average return of 29% in those 13 years. As you can see, he owned 1,000 individual stock positions. This mean that his investment style is very vary .
This is totally different from Buffet style because Buffet invests in the company that has long term competitiveness only. Buffet will never invest in 1,000 companies unless they have competitiveness enough. Lynch divides stocks into six different categories. 1. Slow Growth – Big cap stock that can grow about 2-4% annually.To make a profit on this type of stocks ,you must buy it when the price is very cheap .Or you can invest on this stock at fair price to be a dividend play .And of course this is not Lynch’s favorites .
2. Strong company- For example ,Coca-Cola, P&G, Colgate-Palmolive .This company can grow like 10-12% annually. If you found this particular stock ,you can aim for 30-50% profit within 2-3 years .Lynch usually have this stocks in portfolio when the economic depression occurs.
3. Fast Grower – This is Lynch’s favorite investment .He defines “Fast Grower” for the companies that can grow 20-25% a year in term of profit for the next 10 years. These companies share price can grow to 10 -20 times within that period.
4. Cyclical – Company that has an income volatile by the economic cycle or cycle of commodities price such as auto,steel,petrochemical,oil ,Shipping Companies . You can make a nice profit at Cyclical by understanding the Cycle that affect its earning .Buy stock in lowest downturn and sell in highest upturn.
5. Turnaround – Like its name. This is a company that has a bad situation and buy in the bet that it will recover .This is risk investment because the company can be bankrupt if it is really really bad .Lynch said you should not put all your money on these companies.
6. Asset Play – The stock with hidden asset. It might be any kind of asset such as land,building or cash. You should buy the stock when its price is a lot cheaper than total of its asset and wait for someone to unlock its asset value by liquidating it. This is lower risk that you will loss your initial investment but there will be a lot of opportunity cost because all you can do is waiting .
You can read Peter Lynch investment guide in “One up on WallStreet” . A great investment book with very good writing skill .Very fund and worthwhile to read.
| 
