( 2 ) Strategies of Peter Lynch – Author of One Up On Wall Street

 

Strategies of Peter Lynch – Author of One Up On Wall Street

Part 02

Key takeaway 03: Stalwarts

Stalwarts are the companies that are in the middle of fast growers and slow growers. Peter lynch mentioned that they are recession-proof companies.

The fourth category of companies is cyclical. Cyclical companies that use profits move up and down in cycles. It could be companies in the cement or oil industry as oil raw materials (Clinker and Oil price) generally move up and down according to the supply and demand of the time. Automobile companies are another example of cyclical companies. When the economy is strong and demand for a new vehicle is high these companies can be very profitable. However that can flip very quickly, the economy can slow down new vehicle demand can reduce rapidly and all of sudden these companies lose a lot of money. In cyclical companies trick is to buy them during the downside and exit during the upcycle.

 5th category is turnarounds. Turnarounds are companies that are currently struggling but you think will turn themselves around. Wells Fargo is a current example of this category. For turnaround companies, the strength of the balance sheet is very important because they need to survive in tough times if there is any possibility of a turnaround. (Make sure to stay away from companies that have high levels of debt because they are the companies that can go bankrupt. Keep your eye on Debt: Equity ratio & Current ratio.

6th category is asset plays.  This is all about the assets of the company that is underappreciated by the market. The assets can be tangible or intangible. (ex: for tangible assets – Building, Vehicle, Factories | ex: for intangible assets – Goodwill, license, patents)

Key Takeaway 04: Don’t over-diversify your portfolio

Many investors have 25 to 30 stocks in their portfolios and know little about these companies. But they believe they need to have more companies in their portfolio to be diversified. Peter lynch refers to this as “diworsification”. This is where people buy companies that are not good and that they know less about just for the sake of portfolio diversification.

Key takeaway 05: Look for ten baggers

One of the key reasons peter lynch outperformed the market in his 13 years of a fund carrier was the fact that he was able to identify stocks with huge growth potential. Peter lynch called this type of company ten baggers. Meaning that the stock price has the potential to be 10X from its current price. It’s easier to find ten baggers when you are looking at smaller companies than when you are looking at larger companies. On average it’s much easier for a stock to go from a market cap of 1 billion dollars to 10 billion dollars than a company to go market cap from 1 trillion dollars to 10 trillion dollars. Large companies may great investments but they won’t be ten baggers due to the difficulty of growing if you are already a large company.

 

Strategies of Peter Lynch – Author of One Up On Wall Street

Peter Lynch was the manager of the Magellan fund at Fidelity Investment. As the manager of the Magellan fund between 1977 to 1990 lynch averaged 29.2% annual return. More than double S&P 500 index and making it the best-performing mutual fund in the world. His book, one up on Wall Street is must read for anyone who loves to invest in the stock market.

Key Takeaway 01:

A stock represents part ownership of a business. It's not just pieces of paper that float around in price. one of the keys to successful investing focuses on the companies. Not on the stocks. Don’t worry about the short-term price movement of the stock. You have to accept the short-term price volatility of a stock to get benefits in the long term. Instead of a focus on the short-term price changes of stock, try to focus on the underline performance of the business because in the long run stock price follows the earnings of a company

If you invest in Walmart focus on how much percentage they grow their revenue over the past ten years. And their gross profit margin, net profit margin, earning per share, dividend per share, the net asset value of a share, return on equity, return in invested capital, cash flow per share, growth or decline of market share of a particular industry, and whether they have honest and skillful management to operate the business. To understand the company you need to research the company.

 

Key Takeaway 02:

Types of companies. Number one fast growers. These types of companies have proven to be growing their earnings per share by about 25% or more. The key to investing in these types of companies varies and exits when the revenue growth rate slows down. Fast growers are not usually owned by big money institutions and they are rarely heard of. Because of that, these kinds of companies are underappreciated and maybe sell at discount. 

Number two: Slow growers. Slow growers are companies that pay a dividend. The best kind of dividend-paying companies is those that grow their dividends consistently every year. With these kinds of companies, we should look at their dividend payout ratio and dividend growth rate. The dividend payout ratio is how much they pay as dividends from their profits.

More than 100% is a warning signal because dividend needs to be paid from profits that they make. Companies manipulate dividend payments by selling their assets to attract and steal retail investors' money. Stay away from those companies when you find one. You can identify General motors as slow growth company because they do not have any more market share to catch. Now they are in a matured stage in their industry and they maybe distribute 50% or 60% of their profits to shareholders as dividend payments of share buybacks. 

As you already know, to maximize profits, a business has to either increase revenue or minimize expenses. A business in the matured stage often tries to reduce costs. But as there is a limit to that, after this time the profits of the business may start to decrease. Then you can observe that the amount of dividend entitled to the shareholders is gradually decreasing.

 

Stay tuned for the next chapter of this article..

 

Story of SPAC King

 

Chamath Palihapitiya

Chamath palihapitiya is Sri Lankan born American Canadian billionaire. He’s such a great

example of his entrepreneurial skills and innovative ideas that change the world of finance and

investing. He almost becomes one of those one-name people who listen in finance circles.

After he complete his early Facebook executive journey in 2011, Chamath made a name

for himself and also started making angel investments on the side with his money.

Chamath is the founder and CEO of social capital, which provides funds and technology for

startups. Chamath founded Social Capital in 2011 to invest in companies in fields being ignored

by other venture capitalists, like the health sector, financial services, and education. However, the

firm has since expanded to invest in tech companies like Amazon, Tesla, and Slack. We can

identify some great entrepreneurial skills such as risk-taking and not being afraid of trying new

things from his character.

 

Thanks to the investment skills he managed to build billion dollar empire at age of 32. He

highlights that the best way to become successful in business is own equity percentage. At

an early stage, he accepted minority share ownership of the company instead of a paycheck.

In 2011, he left Facebook and started his fund, the social capital partnership with his wife,

the firm changed its name to social capital in 2015. Through the fund Palihapitiya invested

a number of companies including Secondmarket, Slack, and yammer. As of 2015, the fund had more

than 1.1 Billion $ in total assets under management, and most of them came from other

investors who believed in Palihapitiya's vision.

 

Innovation and invention

 

In 2018, Social Capital became mainly a permanent capital model and launched two SPAC

platforms.SPACs are used for special-purpose acquisition companies.

These platforms were created, according to Social Capital's website to "provide an alternative

the growth path for companies to go public while continuing to make public and private

investments, with a broad focus across climate science, life sciences, crypto/decentralized

finance, and deep tech.

 

In 2019, he sponsored a company that merged with Virgin Galatic. (Company of Sir Richard

Branson) later selling a large part of his stake for $200 million in March 2021. He continues to

sponsor Special-Purpose Acquisition Companies IPOs.

 

Chamath Palihapitiya raised six special purpose acquisition companies (SPAC) in 2020,

including one with Virgin Galactic founder and billionaire businessman Richard Branson. He

also invested in two companies going public via black-check vehicles in January: innovative

lock maker Latch and solar lender Sunlight Financial.

 

SPAC

Palihapitiya known as king of SPAC. This is the one form of way that he introduces special

purpose acquisition companies to the general public and make the public aware of this.

SPACs are commonly formed by investors or sponsors with expertise in a particular industry or

business sector and pursue deals in that arena. SPAC founders may have an acquisition target

in mind, but don't identify that target to avoid disclosures during the IPO process.

Called "blank check companies," SPACs provide IPO investors with little information prior to

investing. SPACs seek underwriters and institutional investors before offering shares to the

public. During a 2020-2021 boom period for SPACs, they attracted prominent names such as

Goldman Sachs, Credit Suisse, and Deutsche Bank, in addition to retired or semi-retired senior

executives.

 

The funds SPACs raise in an IPO are placed in an interest-bearing trust account that cannot be

disbursed except to complete an acquisition or it will return the funds to investors if the SPAC

is ultimately liquidated.

 

Chamath is confident in adapting new ideas. He will be able to uncover investment ideas that

traditional asset managers won’t be able to find in fact he claims that he would rather have 500

billion dollars managed by 500 people than a small group of fund managers. This investment

philosophy is a bit different from the current context.

However, in this way, he added a tremendous diversification approach to his fund because the

people who manage Chamath’s money will be investing in a variety of companies with varying

attitudes. His ultimate goal is to build the world’s best-performing Investment Company for next

50 years. 

The exposed lesson of Steve job’s 

What is the most valuable lesson that Steve Jobs got in his life when he was working at Apple?

According to him, it is taking a longer-term view of people. By that, he means that when he sees something wrong, something inaccurate, his first reaction is not to fix it but to let it happen and look outside and try to get some understanding of its effects on the business in the long run. He believes that if he corrects a mistake as soon as he sees it, he will be able to come up with a successful answer in the short term, but in the long run, the imagination of the employees will be weakened, which will have a negative effect on the business. He further says that Apple's goal is not to produce the best innovations for the next year but to bequeath great innovations for the next few decades.

He says that one of the most valuable lessons in his life is being able to find his passion in life at an early age. Starting Apple with a friend at the age of 20, he was able to turn Apple into a $2 billion company with 4,000 employees by the time he was 30. Also, when he turned 30, the board of directors arranged to fire him from his own company. At that time, In that time he was suffering from a significant mental breakdown and decided to give up everything. But after thinking for a long time, he realized one thing and that is that he loved what he did. The result is that he returns to doing what he loved. He started two more companies and get back into Apple. The most valuable example we can get is that no matter what obstacles we face in life, we should stand up again and be courageous and determined to do what we want. He says getting fired from Apple was one of the most valuable things he ever got in his life.

Our lives have been governed by various limitations since we were born. First 18 20 years of life study well go to school then go for higher education after that apply for a job in a company are things that our environment inculcates in our heads from childhood. Apart from that, our society has put it in our heads that it is very wise to collect some money after some time and put down all the funds to buy a car or a house. But what you should think about is what kind of success and mental freedom you will get by doing these things. Most of the time all you will inherit is a pile of liabilities and a pile of bank loans. Most people have to work a job they don't like for the rest of their lives to pay off that debt. At the end of the day, all they do is shape their lives according to the limitations of the people in society. It is not a successful method. When it comes to life advice, only seek advice from people who have already achieved the dreams you want to achieve in life. For example, starting a business, creating an investment portfolio at a young age, and creating several successful passive income streams are more valuable than a vehicle or a house. Doing these things that society doesn't tell you will benefit you and your loved ones more than doing what tells you to do. This is the message steve jobs has given to the world in his interviews.