one up on wall street - peter lynch


favourable attributes of a company

1. It sound dull, ridiculous
dull name, less attention eg. 3 stooges

2. it does something dull
eg. manufacturing cork, bottle cap

3. it does something disagreeable
eg. deals with dirty sludge

4. it's a spin-off
eg. separation of companies into freestanding entity

5. institution don't own it & analyst don't own it

6. rumours abound: involve in toxic waste, mafia

7.something depressing about it
eg. funeral home

8. its a no growth industry
eg plastic fork/knife, boring, no competition

9.its got a niche
eg. rock pit, drug, drug companies

10. people have to keep buying it
eg. cigar, softdrink

11. its a user of technology
eg. use technology to cut cost

12. the insider are buyer
eg. workers buying its company share

13. the company is buying back its shares


comparing growth rate to PE ratio
eg. long term growth=x%
dividend yield=y%
PE ratio=z
factor=(x+y)/z
look for >= 2, 1.5=ok, less than 1=poor

evaluating the cash position
eg
cash+marketable securities=5.7+4.4=10.1b
long term debt=1.8b
cash position=10.1-1.8=8.3b
outstanding sh=500m
net cash/sh=8300/500=16.6 (ignore st debt)
say sh is trdg at 38, net buying is 21.4 (38-16.6)
if expected earning/sh=7
at 38/sh, PE=5.4 (38/7)
but at 21.4, PE=3.1

say other biz in the group is contributing earning of 1.6/sh and its PE its 10.
so, its value is 1.6x10=16, extracting 21.4-16=5.4

therefore the net buying of this share is only at 5.4 although we are purchasing it at  38.
these type of value may emerge at any time but definitely at when the whole market  is under distress, bad economic situation, share market plunging.

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