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Monday, June 21, 2010

The Future - What Would Peter Lynch and Sir John Templeton Say? Short Clip Provides Timeless Counsel

Last week, we shared concerns around high public debt levels that may well lead to slower economic growth for over-levered countries such as the U.S. In this post, we re-orient away from well-publicized risk factors to focus on common sense investing strategies.

Back in February, we shared a video featuring Peter Lynch in 1982 and Philip Carret in 1995 (thanks to Youtube and WSW). Below is another gem of a video we've been waiting to share until market fear and uncertainty resurfaced. The 1990 video is also from Wall Street Week with the late Louis Rukeyser. In our view, the 11 minute clip is worth revisiting often to glean and reinforce significant insights on how and why to pick companies (stocks).

The video features Peter Lynch at age 46 and the late Sir John Templeton at age 78. A few nuggets of wisdom:
  • Peter Lynch: there is a direct relationship between earnings and share price; know what you own (don't buy thin air); be patient - most money is usually made in third, fourth, or fifth year. "Almost everybody has the brain power to make money in the stock market. The question is, if you have the stomach and are willing to do a little bit of work." 
  • Sir John Templeton: average holding period of five years - be patient; "very rarely is any share valued for it's true price, it's true value. In a single year's time, they go 50% too high, 50% too low...." 
  • This is priceless: "The main thing that people need to learn is that selecting assets is totally different from almost every other activity. If you go to ten doctors and they tell you the same medicine, that's the thing to take. If you go to ten engineers to build a bridge, they tell you the same thing, that's the thing. If you go to ten investment advisers and they pick the same asset, you better stay away from it!"

Despite ongoing worries and approximately flat market performance during the first decade of this century, we suspect these investment legends would relay similar counsel today. There are always opportunities, particularly for those willing to remain patient and, as Mr. Lynch notes, committed to at least a modicum of ongoing research.

Happy investing,

Jeffrey Walkenhorst

Disclosure: n/a.

© 2010 Jeffrey Walkenhorst
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  1. This advice is great - in a Bull Market but Jeffrey, we're not in a bull market anymore.

  2. Hello Pete,

    Fair point - hard to know what kind of market we're in... Those who are more positive might agree with Sir John Tempton's famous saying:

    "Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."

    While others only see doom and gloom, with a long, slow (but volatile) path downward. There is a rational tendency to say "it's different this time" given (1) gigantic, growing public debt loads, (2) underfunded entitlement programs plagued by increasingly upside down demographics, (3) a weak labor market, and [you name the problem]. Although we could again look to Sir John Templeton here, who said:

    "The four most dangerous words in investing are: 'this time it's different.'"

    The truth is, I'm not sure what's in store next quarter or next year for the market. We need to be aware of what's going on around us, yet what I do know is that the above common sense advice is applicable in any market environment. There still are companies with healthy growth, sometimes offered at low multiples.

    Aside from the massive recovery over the past year for most names, we can find some examples of Peter Lynch's share price/earnings correlation point in the context of Sir John Templeton's preference for international diversification. In this case, Chinese stocks SOHU, SNDA, and BIDU. These have been notable strong performers through the downturn on consistently higher earnings and free cash flow. One closer to home: PCLN.


  3. PS - the strong performance for those names referenced was over a multi-year period and I'm not necessarily recommending these names (e.g. BIDU) at current levels...


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