Lynch’s stock selection has always been known for his flexibility, and is known as the “stock-loving breed” . According to preliminary statistics, he has traded more than 15,000 stocks (I am afraid that he has touched most of the stocks). When recommending stocks to “Barron’s”, there are often hundreds or even thousands of stocks – this is equivalent to no recommendation, and it seems that there are no stocks that he does not like.

In the initial stage of his career, when he was turned from an analyst to a fund manager, his operating style seemed to be almost the same as that of ordinary Chinese investors today, with short-term operations and frequent stock swaps. The difference is that in the end he succeeded, while many people at home and abroad who frequently trade stocks like him make very little money.

Where is the difference? Just in Lynch’s insistence on some “important stocks”.

“Looking for good stocks worth investing in is like looking for bugs under a rock. If you open 10 stones, you may find only one, and if you open 20, you may find two.” Lynch said.

Every year he turns over thousands of rocks to ensure he finds enough little bugs to satisfy the growing appetite of the Magellan Fund. Many of the stocks he bought were probably just turning over rocks, and threw them away as soon as he found that there were no bugs, so sometimes it seemed that the stock exchanged frequently. In fact, as long as he finds the rock of the little bug, he will always cover it, but it is very rare, and everyone rarely pays attention.

In order to find enough bugs, Lynch’s life is very compact: he visits about 500 to 600 companies a year, goes to the office at 6 am every day, and only goes home at 7 pm at night. Even the time on the road is basically spent reading. Spend time; I may negotiate with a company at lunch every day; I also pay attention to the company I like when I go shopping with my wife and daughter. When I am on vacation with my wife, I come across a company related to my investment nearby, and I also go to investigate at any time. .

“In 1980, I visited a total of 214 listed companies, which increased to 330 in 1982, 489 in 1983, 411 in 1984, 463 in 1985, and 570 in 1986. home,” Lynch said.

Peter Lynch Investment Strategy

One day Lynch found that his three daughters’ cosmetics came from the same company, The Body Shop, and when he went shopping with his daughter, he also found that the company’s chain stores were doing well and belonged to him. One of the best shops in the shopping malls observed. The sensitivity of the profession immediately intrigued him.

The company was founded in the United Kingdom in 1976 and has grown rapidly with its natural product concept and retail monopoly. The company’s products are all very “weird” cosmetics and skin care products: lotions and body washes made of bananas, nuts and strawberries, beeswax mascara, orchid oil facial cleanser, carrot moisturizing lotion, honey and oatmeal mask, and Seaweed plus birch shampoo, etc. The company has been listed in the UK, and its business has quickly expanded overseas.

Lynch began to observe the booming company through various channels and methods.

Inside The Body Shop is crowded, business is surprisingly good, and merchandise is selling well. By some estimates, a 3,000-square-foot body shop would have about as much turnover as a 100,000-square-foot Sears department store. Of particular interest is the fact that many customers of all ages like the company’s products.

Another thing that inspired Lynch was that a very smart former colleague of his would rather give up a generous and stable salary and use the money he saved to open a chain of The Body Shop and become a small boss. Such a guy chooses to sell The Body Shop products, to a certain extent, also proves the attractiveness of this business.

In addition, The Body Shop attaches great importance to social responsibility and advocates a fresh way of life, which also left a deep impression on Lynch. The company’s products are all made of natural raw materials; employees can take one day off every week to participate in community service work; advocate recycling of old materials, such as recycling shopping bags or using old bottles to buy new body wash, there will be discounts; the company advocates health and beauty rather than simply putting beauty first.

Although the company expanded rapidly, it was not laissez-faire, but very cautiously expanding its territory. Lynch learned about the company’s prudence from friend Stephenson.

Stephenson opened a franchise store in Burlington Mall, and the facts have proved that she is fully capable of successfully running a branch, but when she applied to open a new store in Harvard Square, the chairman of The Body Shop still came out in person, Fly from the UK to the US to conduct a site visit and carefully assess Stephenson’s operational capabilities.

If The Body Shop expands and opens new stores with its own funds, it would be justifiable to be so cautious, but Stephenson opened the Harvard Square franchise with her own money, and it is her second franchise store. There is no direct approval without evaluation as a result. This surprised Lynch.

After the above analysis, under the basic conditions, according to Lynch’s standard, this company has the potential to become its own target, but it still needs to be further explored to see if there are development risks and sufficient development prospects.

In terms of product nature, The Body Shop’s products are still standardized products with moderate prices. The most common products like shampoos and body washes are cheaper than boutiques but a little more expensive than discounters.

The company expands by adding franchise chains, requires little debt, has low risk, and operates across borders from the start, with strong market expansion capabilities, but far from saturation. The Body Shop has the largest number of stores in Canada, with about 92 branches, but at that time there were only one branch each in Japan and Germany, and only 70 branches in the United States.

According to the logic of the Canadian market, the population of the United States is 10 times that of Canada. If the population of Canada can support 92 branches, and the profit of a single store is very high, then how many stores will there be in the United States, Japan and Germany? Is it appropriate? Even if it is calculated according to a conservative estimate of 1,000 companies, the company’s growth rate will reach about 8 times.

The conclusion is obvious: this is also a fast-growing company, with popular products, rapid expansion, high profit per store, and not too much debt. It can successfully replicate its own chain business model across borders. This successful replication makes the company growth can maintain a steady growth rate.

So how does The Body Shop perform in reality? When The Body Shop first listed in the UK in 1984, its share price was only 5 pence (equivalent to 10 cents), with a total market value of 8 million pounds. During the stock market crash in 1987 and the US invasion of Iraq, its share price plummeted, but by In 1990, its share price rose to 362 pence. By 2006 the company was acquired by L’Oreal for a total value of £652 million.

In the end, Lynch and the Magellan Fund made a fortune in The Body Shop.

Investment Link 1: In addition to diligence, Lynch has no special secret

Many people believe that in order to be a big winner in the stock market, one must have a high talent, a high education, and a deep financial background. According to this logic, investment wizards like Peter Lynch must be talented, highly educated, and have a deep financial background.

This is indeed the case. Lynch is exceptionally intelligent. He is an MBA from the Wharton School of Business. He worked his way up from an analyst at Fidelity Fund Management to become a fund manager who controls huge sums of money. But when he first appeared on “Wall Street Week”, he said: “Investing is 99% sweat and 1% inspiration.”

Many people will say that this is just Lynch’s self-effacing words and cannot be taken seriously. But in fact, I am afraid this sentence is not polite. Diligence is indeed the most important factor for Lynch’s investment success. The diligence here includes not only the diligence of legs and feet, but also the diligence of thinking. Through the diligence of his mind and legs, Lynch selected the “stone with bugs below”, and based on this, he made a bold bet and dared to hold it patiently. If there is a secret, it is the real secret to his success.

Due to being in a fund company, subject to the constraints of corporate discipline and the close attention of public investors, the fund’s net value will face various opinions from these people as soon as it is in trouble – in fact, it is also a huge pressure. For this kind of pressure, Buffett can resolve it invisibly through various strategies, but Lynch cannot. Therefore, for Lynch’s investment career, it is necessary to look at it in stages.

In the early days, the Magellan Fund faced a lot of redemption pressure from investors, and Lynch’s frequent buying and selling of stocks was also related to this factor. But this is only the preparatory stage of Lynch’s fund career, which has tempered his stock-picking feeling. Then his diligent research and deep wisdom made him able to cope with all aspects of pressure like a duck to water.

He himself said: “My stock selection method is art, science and research. It has not changed for 20 years.” As we discussed earlier, the so-called science is to look at a large number of financial statements and make corresponding quantitative analysis. Art requires a kind of inspiration that can only be comprehended and inexpressible, but it is a prerequisite to have access to a large number of first-hand information about companies. Both of these aspects require hard work, and both require hard work as a foundation.

In fact, as an MBA graduated from Wharton, Lynch can be like other Wall Street fund managers, sitting in his office every day reading reports sent by analysts and buying a bunch of blue-chip stocks, so that even if he loses money in the future Others will just push the cause to something else.

However, he tried his best to research and research, and in the end, he held a heavy position in the stocks of small companies that everyone was a little worried about. These companies are all weird, but they all have high growth potential. If they lose money in the future, it will definitely be their own fault. The leaders will find themselves, and fund investors will also find themselves.

But that’s Lynch.

Investing Link 2: The Charm of Retail Stocks

The logic of The Body Shop is that a company with a popular product, a very fast expansion rate, a high profit per store, and not too much debt can successfully replicate its own chain business model across borders. Moreover, when copying, it is very cautious and the risk is manageable.

Lynch loves this kind of business model that can be successfully replicated, which is more common in retail. So Lynch has a soft spot for retail during his career. “The most attractive part is that you can fully observe the development of companies in the industry for a long period of time. It is not too late to buy stocks after they have proved their great potential.” Lynch described it this way. companies in the retail industry.

If a business model can be successfully replicated, it means its management efficiency and the effectiveness of its internal operations. In the future, everyone just needs to copy it, and expansion in different regions will save a lot of management costs. Every investor likes this business model, because in this business model, it means that as long as the sales point is increased and the operation is standardized, the profit can be increased.

In a model that can be replicated successfully, in addition to the difference in regions, other such as sales, management, finance, production, etc. can be transplanted equally, so that no need to change other things, just through the expansion of the scale will directly bring to increase profits.

Everyone likes simplicity, everyone likes predictability, and everyone likes low risk with increased profits. This business model just caters to everyone’s psychology.

Lynch once said, “In my long-term observation of the ups and downs of various industries, I have found that despite investing in cyclical stocks and undervalued stocks in special circumstances, you may get 2 to 5 times your investment. rate of return (if all goes well), but it’s much better to invest in retail and restaurant companies , which are not only growing as fast as high-tech, but are generally much less risky. “

In retail enterprises or chain enterprises, find a successful model, and then there are many examples of rapid development at home and abroad, such as KFC, McDonald’s, Carrefour, Home Inn, Starbucks and so on.

This kind of enterprise is very close to people’s lives and can be found in life.

This article is reprinted from: https://news.futunn.com/post/16174025?src=3&report_type=market&report_id=207291&futusource=news_headline_list
This site is for inclusion only, and the copyright belongs to the original author.