My favorite perk of the job is we get to sit down with Lynch. Here are some unedited notes from a recent meeting. Most are covered in his books, but there were a few interesting nuggets.

Stock picking and portfolio management:
• Will look at 1000 companies a quarter inch deep, and drill down on maybe 20. Some will jump out at you, and the more you look, the better.
• Any 30 stocks (typical number for average analyst coverage), 28 are holds.
• If I like 10 stocks the best, will put equal weighting in each stock, as the one that will go up the most will always be the surprise.
• Does not believe in “good management” – it is important to business, but the odds of analysts figuring that out is slim to none. Most of what we can do is look at the track record and recent results, which could have been seeded by some other people's moves 7-8 years ago. Prefer good business over good mgmt. Used the example of Toys R Us at 4 stores, didn't matter whether it was run by idiots or a team of Gates/Welch.
• Stay away from 10% grower at 8x PE (traps). Want to own 25% grower at 40x PE. Simple math of compounding.
• Aside from good growth companies, he likes industries that went from terrible to bad. Used the Chrysler example again. When company went from losing $6 to losing $2, market didn't care, that's when he started buying. When company went from losing $2 to making $2, stock tripled. In 1982, 32% of his portfolio companies were losing money (pointed out to him by Pension people at Kodak who are very sharp people). As long as the company is not in risk of bankruptcy (he waited for Chrysler to get loan from government before buying and after the stock went from $2 to $4.5), he doesn't mind.
• On the flip side, when things go from great to less good, he will trim down and put money in improving stories -- “this is what portfolio management should be”.
• Just because a stock is cheap, doesn't mean it will work. His first recommendation at the firm was a disaster – apparel manufacturer caught in a change in fashion, despite net cash and low multiple, inventory was worthless, and the company went bankrupt in a year. Also used BRK example below net net.
• Not interested in stocks that has 30% upside and 30% downside.
• Made a lot of money trading stalwarts for 30% gains. Believes you have to be aggressive with these conservative/steady companies.
• Never care about turnovers (even when transaction cost 15c/share), as long as he puts money into good ideas/great stories.
• Used to be at office 7am on Saturday for 11 straight years.
• If a company is doing better than you expect and your bias was to avoid it, chances are other people think the same way, and you should buy it.
• Doesn't care about what the stocks have done, as long as earning estimate is substantially different from the street (used Home builders again).
• When talking to mgmt, always verify their statements. Always ask about competitors and make them explain why the company can earn above-average ROE.

Personal Portfolio and current market
• Does not believe in a concentrated portfolio -- own ~250 names in the PA now. Many are small dink positions (0.01%). I asked him about the Buffett statement of 50% return on a small portfolio. He smiled and said he is not making that kind of return in his PA.
• Once, 50% of PA was in S&Ls. Have to jump at these opportunities when market is mis-pricing the entire industry (happens once every 2-3 years)
• Will spend time in the sub-prime space, think there are opportunities, but could be difficult to distinguish bad/good operators (loan receivable quality tough to tell)
• Paychex is the business he likes, although PE is still an issue. On that note, think SBUX is a bit expensive, but GOOG looks cheap (considering buying). Don't own MSFT, think 10% downside, 30% upside.
• Believes beaten down techs (software) is a good space, as he thinks corporate spending will go up.
• Very bullish on natural gas, should be $10.
• On home builders, think they will do fine as top players have good b/s even after discounting the write-offs, and consolidating mom-n-pops will help. Compared to buying AZO in the consolidating auto parts industry.

US Economy is doing great
• Thinks economy is doing great. Don't understand why people start worrying about the recession one quarter after the last recession just ended. Thinks “4-year cycle” is garbage, as US economy could have gone 20 years without recession (thinks '90 recession was one of those out of the left field, wars, banking crisis).
• To get a recession, you need some industry way over the norm, but see none of that right now. instead, you have many industries under-spending for decades and just now catching up. (utility, freeway, agriculture, telecom, metals).
• Amazed that companies are buying back so much stock so “late” in the cycle, which indicates mgmt is more careful with capital allocation. I asked if this will cost the shareholders in the long run with less capex, he doesn't think so and believes mgmt is doing the right things returning cash when they are not sure about returns on spending.