The Motley Fool Discussion Boards
Investment Analysis Clubs / Value Hounds
|Subject: Re: Ten Bagger: two home-runs and a double||Date: 10/11/2012 1:43 PM|
|Author: BeatleMartian||Number: 11973 of 18405|
Lynch was not all ten baggers, he had a core of slow and steady and a long tail of potential ten baggers.
Forgive me if you will, but I've more or less referred to One Up and Beating and the Money Master profile for - don't know - maybe 20 years now, and built my investment philosophy, business, and day to day approach on those books so my opinions or comments tend to come off pretty strong. So that said, there is a direct reference that explains in Lynch's words how he created a portfolio:
One Up, Chapter 16, page 240, revised softcover
Some people ascribe my success to my having speacalized in growth stocks. But that's only partly accurate. I never put more than 30 to 40% of my fund's assets into growth stocks. The rest I spread out among the other categories described in this book. Normally I keep about 10 to 20% or so in stalwarts, another 10 to 20% or so in cyclicals, and the rest in turnarounds. Although I own 1400 stocks in all, half of my fund's assets are invested in 100 stocks, and 2/3rds in 200 stocks. One percent of my money is spread out among 500 secondary oportunities I'm monitoring periodically, with the possiblity of tuning in later. I'm constantly looking for values in all areas, and if I find more opportunties in turnarounds than in fast growth companies, then I'll end up owning a higher percentage of turnarounds. If something happens to one of my secondaries to bolster my confidence, then I'm promote it to a primary selection.
Granted, this isn't that much different than the point you are making but Lynch was far more than that. If it matters, and this was a while ago when growth rates were different, but Lynch says elsewhere that he rarely invested in the typical slow grower because slow EPS growth was rarely rewarded.
Course, when you read Lynch, you've also got to realize that anything he says is reflective of 1) the fact that he was Head of Research at Fido before he took over Magellan and 2) Lynch was essentially able to command all the resources of that organization. This made him uniquely qualified to be able to evaluate almost any opportunity that came across his desk, and indeed Lynch's category system defined in One Up (and expanded on in Beating thru company by company profiles) is set up to cover virtually any stock there is - assuming you as an investor get the category right and stay updated and have knowledge of the industry in question. Mere mortals like us have to pick and choose what works for us.
With stocks the outcome is uncertai...
This is more than an academic exercise but if you assign the category correctly getting the outcome - or possible outcome - right is a lot more straightforward. So...
...in all cases assuming a stock is appropriately valued and analyzed correctly, then...
*slow-growers are low risk, low gain
*stalwarts are low risk, moderate gain
*cyclicals are low risk and high gain or high risk or low gain depending on how adept you are at anticipating cycles
*fast growers and turnarounds are both high risk, high gain categories
As Lynch says, the key is knowledgeable buying.
I have found that the above is very helpful when looking at any position.
As to the original home run analogy, I agree that if one has success in one area and failure in another it makes a world of sense to stay in the successful segment. But that doesn't invalidate investing in any category whatsoever, assuming you know what you are doing.
There is no need to take "ten baggers" literally.
right - Lynch even mentions this:
By successfully rotating in and out of several stalwarts for modest gains, you can get the same result as you would would a single big winner; six 30% moves compounded equals a 4 bagger plus, and six 25% moves compounded is nearly a fourbagger.
My point is that you don't have to exclude one method or the other, instead, you can combine them into a winning strategy like Peter Lynch did.
Exactly! And read the book, and read it more than once.
|Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|