"Outperform 99% Of Investors With This Simple Strategy..." - Peter Lynch

people don't understand their natural advantages and they don't use it that's bad number one but worse number two if you don't think you're a good ice skater or if you're convinced you're not a good cellist you're not going to try it but people are buying stocks anyway they're not discouraged they just think it's a gamble yeah we begin with peter lynch time magazine has called him america's number one money manager during the 13 years he headed the fidelity magellan fund it was a top-ranked general equity mutual fund his new book beating the street offers advice

on picking stocks and maximizing profits and he's here to talk to us about a lot of things welcome to the broadcast you wrote a book called one up on wall street and i think that's one of the best-selling books ever about wall street if i'm not correct you can correct me so why then did you write another okay okay i think the reason i wrote it is the first i try to explain to people their great advantages their edges they have and that they should get involved in stocks right and they should do it on

the right basis on the first book right yeah and obviously i didn't make a great impression because the percent of people's assets involved in stocks has gone down in 1960 people had 40 of their financial assets including their house in stocks and mutual funds in 80 that was down to 25 it's now down to 17 and why do you think that is well i think people in the decade of the 80s was the best decade this century for stocks i think people managed to lose money in the 80s doing it themselves because their methods were

so flawed so i i really feel as though i wanted people to understand i don't want anybody to buy a stock i'm saying if you're going to buy a stock you should do certain things right if you're not willing to do these things you should leave your money in the bank your philosophy is simple and i'm remembering this from the previous book i think we're now talking about the previous book correct your philosophy was if you find something that you identify with i remember that was the story of your wife and her hose yeah your

wife kept all the legs oh you got it legs and panties your wife said these are the greatest things i've ever seen right and when your wife said that you knew that this was a product that was better right you used to stay at la quinta motel right the service was better whatever was better the price is good and the price was good too and you said this is a place that i can determine i peter lynch can tell that this is a good product right if these people are making a good product then their

earnings are going to go up therefore the stock's going to go up right and that's the kind of decision-making process you ought to go through right do i have it you've got it exactly right well i do i don't think people understand there's a 100 correlation with what happens to a company's earnings over several years and what happens to the stock if the company mcdonald's has done very well as a company right the stock has done very well people worry about too much money supply what's happened the price of oil who's the president who's being

nominated for the supreme court it's the ozone layer there's nothing to do mcdonald's earnings go up the next 10 years the stock will go but what they will say to you peter is that as you know and why am i telling you this but it's fun to tell you this they're telling you that these other things influence the amount of earnings of a particular company if we're in a recession people are not going to spend as much money on going to the movies or whatever they do right and and therefore you got to pay attention

to these other things because they impact on earth they are very important but you have no idea of knowing what they're going to do alan greenspan is the head of the federal reserve right he cannot predict interest rates yes he'd be the first to influence but he can't predict them he cannot predict what long-term interest rates are going to be one year from now two years from now three years he's even surprised how low they are now right so how am i supposed to pick interest rates how am i supposed to predict the economy you

certainly remember the recession of 82 yes 1982 with a 20 prime rate 14 unemployment 12 percent inflation i don't remember anybody telling me in 1980 or 81 that was going to happen all of a sudden we had the worst recession since the depression i didn't read about in the paper so it's crazy to think about these things here's a quote from you i own dunkin donuts when you own dunkin donuts you don't have to worry about korean imports you don't have to worry about m2 or m3 these are money supply figures and what's happening to

the money supply this is the way you make money if you don't understand what the company does you should not be in it if you could predict the stock market you could predict the economy you could predict interest rates if you go buy the wrong stocks you're going to lose have your money anyway right i'm saying people have natural advantages yeah let's say what you do for a living is you're involved in the restaurant industry right you supply paper products you supply kitchen equipment you help build restaurants you saw mcdonald's you saw chichi you saw

chili's you saw cracker barrel you saw dunkin donuts kentucky fried chicken taco bell these are all these stories these were 40 40 fold you made 40 or 50 times your money you don't need to make that kind of money many times your life right that's all you had to do was follow the restaurant industry people are in industries they're in the publishing industry they're in the chemical industry the paper why don't they just stay within industry you only need a few stocks a decade how many good stocks you need a lifetime instead of people they're

in the restaurant industry they're buying biotechnology stocks the people in the camp the people in the chemical industry are buying oil stocks it's absolutely absurd people don't understand their natural advantages and they don't use them so that's that's bad number one but worse number two if you don't think you're a good ice skater or if you're convinced you're not a good cellist you're not going to try it but people are buying stocks anyway they're not discouraged they just think it's a gamble yeah so therefore they go forward and they they bet on one stock for

a week and a half and it goes up and they make two dolls on it then they sell it they buy something else when three years is over all they've done is generate a lot of commissions they've probably lost money that's a mistake so your advice is what if you don't understand a company if you can't explain it to a 10 year old in two minutes or less yes don't own it because when it goes down let's say the stock goes down too you don't understand what's going on what do you do do you buy

more do you do you do you flip a chances are your broker doesn't either you they he or she certainly doesn't know about it i mean who knows what advance what all these things are at auto back planes and megaflops who knows what all this is so buy what you know buy in your industry buy what you know buy local people so so suppose you you don't have an industry i mean you know you don't really you what you buy company local companies right companies your own industry ten years after walmart went public ten years

after walmart ten years after it went public it's a 25 year old company now right you could have bought the stock and made 50 times your money on it 50 times this is if you bought it 10 years after it was public already it already gone up five-fold so you could have made 250-fold but i'm saying let's say you were in a town they came into it they said boy these prices are great they're doing terrific i like the bargains you checked it out you spent a little bit of work on it yeah i mean

people are very careful when they buy a dishwasher they do some research they'll put ten thousand dollars in some stock they're here on a bus so if you did a little bit of research you say walmart's only only ten percent in the country they're not even saturated there why can't they go to the rest of the country so is this this is more of the same is this it's more of the same plus i show examples it's it's a touch more detailed it actually shows me in an action right i picked 21 stocks early in

1992. some work some don't i follow those companies some of the companies the fundamentals deteriorate some they improve i watch those companies go through the year i also explain the retail industry i try and make it very simple i talk about a wonderful example is a seventh grade class yeah the teacher of that read my book and my first book that you were talking about you you and i did a show on that in washington you remember that show this is a long time ago she read the book and i said if you made it

through fifth grade math you can do it in the stock market she says okay she started teaching it in seventh grade seventh grade class these kids had to study companies they had to look at their balance sheets to see if they're solving and they pick stocks these stocks were up 69 percent over two years when the market was up only 20. they picked stocks like limited they picked the gap they picked walt they understood these companies they also picked ibm i lost money on that too yeah i mean everybody makes mistakes but it did yeah

but i'm saying this is this was this was the school saint agnes school in arlington mass but in addition in the decade of the 80s there's 8 000 investment clubs these are amateurs sort of right average people just investing these investment clubs 62 of them these clubs beat the market in the decade of the 80s only 25 percent of professionals beat the market let me go back to one other subject you after you're coming back to fidelity aren't you just i'm not gonna do something when i when i finish this book i've been working about

one or two days a week the last year and a half on this book right now i'm done with the book i'm going to go back to maybe one day a week working with the younger analysts just listening to them talking to them i'm not telling them to buy zero zero lifestyle not totally i'm not gonna run another fund 13 years is plenty of running a fund i'm just going to work with younger analysts let them ask questions i'll ask them questions it's going to be a lot of fun now do you still follow do

you manage any money for anybody other than yourself no no i manage money with other people for some charities right but no i don't manage anybody's accounts you're not doing some mutual funds no it's nothing i'm out of it cold turkey all right you called turkey cold turkey are you happy you did this i'm obviously delighted it's been and you like your new life oh it's fabulous four or five years ago you just said and i'm managing all this money i'm gonna do i'm gonna quit yep that's right and what and you went to do

what well actually i want to spend more time my wife and my children right and it was an interesting situation because i loved my job i adored my job and i and i liked outside activities and when i was young you know i didn't wasn't involved in charity work until i was 30. no activities younger children you just read them a book and a good night moon and they fall asleep but it's all over when they get older there's more time involved so i enjoyed the family i was leaving for work at six in the

morning i was getting home at seven o'clock at night six days a week i was in boston yeah traveling 14 days a month it was just too much so i said you know i i said that's it i can't take it and fortunately i'd made enough money to say i could give up the jobs i didn't have to give up the family or the outside activities and so what happened then so you did what with your well i cut back from about a 80 a 90 hour a week to a 40 or 50 hour week

and i in the morning i make breakfasts and lunches for the kids and i do the spelling words and the spanish words carolyn does the math and the science and i uh see carol in the morning and off i go to a place you have to go to my opinion you have to go somewhere to do something if you stay at home you want to be answering the telephone or watching cartoons so yeah it's like falling asleep taking a nap so she does the hard work and i go i go finally gave me an office

i have a secretary and i spend majority of the time working on charity things like inner city schools inner city libraries inner city housing you know helping people manage their money or no not at all just i'm some of the charities i'm on the investment committee of some of the museum of fine arts the you know i'm involved in national hospital boston college but united way but all the extra things i added to were real hands-on actually being involved in charitable activities