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A thread on Peter Lynch's 13 filters for Finding the Perfect Stock from his book, 'One Up On Wall Street'.
Enjoy reading!
Enjoy reading!
1. IT SOUNDS DULL—OR, EVEN BETTER, RIDICULOUS
“The perfect stock would be attached to perfect company, & perfect company has to be engaged in a perfectly simple business, & the perfectly simple business ought to have a perfectly boring name. The more boring it is, the better.”
“The perfect stock would be attached to perfect company, & perfect company has to be engaged in a perfectly simple business, & the perfectly simple business ought to have a perfectly boring name. The more boring it is, the better.”
2. IT DOES SOMETHING DULL
“I get even more excited when a company with a boring name also does something boring.”
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“I get even more excited when a company with a boring name also does something boring.”
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3. IT DOES SOMETHING DISAGREEABLE
“Better than boring alone is a stock that’s boring and disgusting at the same time. Something that makes people shrug, retch, or turn away in disgust is ideal.”
“Better than boring alone is a stock that’s boring and disgusting at the same time. Something that makes people shrug, retch, or turn away in disgust is ideal.”
4. IT’S A SPINOFF
“Spinoffs of divisions or parts of companies into separate, freestanding entities—such as Safety-Kleen out of Chicago Rawhide or Toys “R” Us out of Interstate Department Stores—often result in astoundingly lucrative investments.”
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“Spinoffs of divisions or parts of companies into separate, freestanding entities—such as Safety-Kleen out of Chicago Rawhide or Toys “R” Us out of Interstate Department Stores—often result in astoundingly lucrative investments.”
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5. THE INSTITUTIONS DON’T OWN IT, AND THE ANALYSTS DON’T FOLLOW IT
“If you find a stock with little or no institutional ownership, you’ve found a potential winner. Find a company that no analyst has even visited, you have got a double winner.”
“If you find a stock with little or no institutional ownership, you’ve found a potential winner. Find a company that no analyst has even visited, you have got a double winner.”
6. THE RUMORS ABOUND; IT’S INVOLVED WITH TOXIC WASTE AND/OR THE MAFIA
A company surrounded by rumors keeps the wall street and other institutional investors stay away from it. For e.g., a company with a rumor of toxic waste or Mafia involvement may be an excellent opportunity.
A company surrounded by rumors keeps the wall street and other institutional investors stay away from it. For e.g., a company with a rumor of toxic waste or Mafia involvement may be an excellent opportunity.
7. THERE’S SOMETHING DEPRESSING ABOUT IT
The mortuary business is a good example.
“If there’s anything Wall Street would rather ignore besides toxic waste, it’s mortality.”
The mortuary business is a good example.
“If there’s anything Wall Street would rather ignore besides toxic waste, it’s mortality.”
8. IT’S A NO-GROWTH INDUSTRY
“That’s where the biggest winners are developed.”
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“That’s where the biggest winners are developed.”
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9. IT’S GOT A NICHE
“I always look for niches. The perfect company would have to have one.”
Examples:
“Drug companies and chemical companies have niches—products that no one else is allowed to make.”
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“I always look for niches. The perfect company would have to have one.”
Examples:
“Drug companies and chemical companies have niches—products that no one else is allowed to make.”
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10. PEOPLE HAVE TO KEEP BUYING IT
“I’d rather invest in a company that makes drugs, soft drinks, razor blades or cigarettes than in a company that makes toys. In the toy industry, somebody can make a wonderful doll that every child has to have, but every child gets only 1 each.”
“I’d rather invest in a company that makes drugs, soft drinks, razor blades or cigarettes than in a company that makes toys. In the toy industry, somebody can make a wonderful doll that every child has to have, but every child gets only 1 each.”
11. IT’S A USER OF TECHNOLOGY
“Instead of investing in computer companies that struggle to survive in an endless price war, why not invest in a company that benefits from the price war.”
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“Instead of investing in computer companies that struggle to survive in an endless price war, why not invest in a company that benefits from the price war.”
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12. THE INSIDERS ARE BUYERS
“There’s no better tip-off to the probable success of a stock than that people in the company are putting their own money into it.”
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“There’s no better tip-off to the probable success of a stock than that people in the company are putting their own money into it.”
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13. THE COMPANY IS BUYING BACK SHARES
"Buying back shares is the simplest and best way a company can reward its investors. If a company has faith in its own future, then why shouldn’t it invest in itself, just as the shareholders do?"
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"Buying back shares is the simplest and best way a company can reward its investors. If a company has faith in its own future, then why shouldn’t it invest in itself, just as the shareholders do?"
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