Peter Lynch chat on Prodigy transcripts 02/05/1996 by Redfield, Blonsky & Co.
Moderator (Speaker)
Welcome to our special Guest Spotlight chat with mutual fund superstar and author of the best-sellers, “Beating the Street,” “One Up on Wall Street,” and the new “Learn to Earn: A Beginner’s Guide to the Basics of investing and Business,” PETER LYNCH! Peter will be answering your finance, business and investment questions here tonight, so fire away!
Thanks for joining us Peter!
Peter Lynch (Speaker)
I'm really enjoying this. I hope to be able to assist you in becoming a more skilled investor tonight. One point that I‘d like to make is that a lot of times, people wait until they're in their mid-30$ before starting to invest - and then they do some foolish, unpolished, "playing" in the market. That expression, "playing the market," has done more damage to investing than anyone can imagine. People are careful when they buy a refrigerator, or VCR, or a house... but they'll put $5,000 on some stock that they heard about on a bus, on the way to work - without doing any research. I’m looking forward to answering as many questions as I can tonight.
Moderator (Speaker)
It's a pleasure to have you in Guest Spotlight, Peter....we've got plenty of finance-minded members here tonight, so let's get to the first Q&A! Our first one comes to us from member "BBK22."
BBK22 (PRODIGY Member)
Hi Peter, Thanks for changing my life with your books. I've "backed the truck on Outback Steakhouse and Microsoft. What do you think?
Peter Lynch (Speaker)
If you know something about the restaurant business and can stay in touch with it, you'll know when Outback Steakhouse is not competitive, or has saturated the market. On the same basis, in the last 80 years, you could have seen McDonald's, Taco Bell, Kentucky Fried Chicken, Pizza Hut, etc. that worked, and lots of companies that didn't work. And you would have known the ones that were "one year wonders" and lost it. long before the so-called professional investors. So the basic reason you bought the stock - it was a superior restaurant, for example - once that started to deteriorate, you should have eliminated your holding. That‘s fundamental analysis.
Peter Lynch (Speaker)
By the way, if anyone has a question about the market, forget it. It would be very useful to know what the market is going to do. But unfortunately, of all the market corrections that have ever come, no one has ever been able to predict them. I would love to see next year's Wall Street Journal. That would be useful.
What's really important is to understand that the market, over time, has been better than investing in bonds, CD's, or bank accounts.
Peter Lynch (Speaker)
The markets had a 10 or 11 percent return, compounded over the last 40 or 50 years, let's say. But the returns are quite volatile, inter-year. For example, there have been 95 years so far this century. Fifty times, the market has had a decline of 10 percent or more. This does not mean 50 "down" years - the market might have been up 26 percent at one point in the year, finished up 4 percent for the year, and had a correction in the middle. So in 50 declines in 95 years means that about once every 2 years, the market has a 10 percent correction. That's going to be over 500 points on the Dow Jones. That's going to get your attention, and it‘s probably going to scare a lot of people.
Peter Lynch (Speaker)
Of the 50 declines of 10 percent or more this century, 15 have been a decline of 25 percent or more. Fifteen declines in 95 years is about once every 6 years. That's going to be over 1,200 points on the Dow. That certainly will get your attention. I haven't seen much in human nature that’s changed in the last 400 years, so there will be these corrections every 2 to 6 years. And what are you going to do when that happens! If you're prepared for it, you don't panic.
Moderator (Speaker)
Peter Lynch is one of the few investment superstars who can explain the basic principles of finance using clear, everyday language. He is the former manager of the Fidelity Magellan Fund and co-author (with John Rothchild) of the current bestseller "Learn to Earn: A Beginner's Guide to the Basics of Investing and Business." Lynch also co-wrote the bestsellers "Beating the Street" and "One Up on Wall Street."
Roccocco (PRODIGY Member)
A pleasure, sir. I bet you've seen on Strategic Investor, the "On Up On Wall Street" model portfolio. Whacha think? Also, where does an investor go on-line to find good info?
Peter Lynch (Speaker)
I have a whole chapter ("Stockpicking Tools") devoted to this - online resources - in my book, "LEARN TO EARN." Some of the resources - and there are pages of them - are online, and some are 800 numbers. Personally, I haven't seen the model portfolio that you mention, but I know that Strategic Investor is an excellent tool.
See full PDF below.
