Peter Lynch on Company’s Business Categories – Peter Lynch was born in Newton, Massachusetts, the U.S. on January 19, 1944, is an American mutual fund manager and philanthropist with experience in investing and finance industry. He became a fund manager in Fidelity Investments from 1966 to 1990. With his contribution, technique, and innovation of his investment methods, from 1977 until 1990, the Magellan fund generates averaged a 29.2% annual return. Some of his books have been read by many people in the world. His guideline on investing has motivated some people to follow his guidance. Some of his books are One Up on Wall Street (1989), Beating the Street (1992), and Learn to Earn (1995).
As an of the greatest finance managers, peter lynch categorizes six general companies. These-these companies, of course, have some distinctive characteristics based on the industry, the loyalty of customers, the strength of the brand or services. Based on them, Peter Lynch categorizes this company into six diverse categories. These included slow growers, stalwart, Fast Growers, Cyclicals, Assets plays, and turnarounds.
1. The Slow Growers
This company included the large and aging companies with slow growth than gross national products. When a company or industry at large slows down (as they always seem to do), most of the companies in the industry lose momentum as well.
Eventually, every popular fast-growing industry becomes a slow-growing industry, and there will be a change of cyclical time like a rolling stone. There is an example of that, Electric utilities are today’s can be included in slow grower. It was different in the 1950s and into the 1960s, the utilities were fast growers, expanding at over twice the rate of GNP. They were successful companies and great stocks. At that time, the booming era of electricity had come. Many people bought refrigerators/freezers. Television and electric bills or consumptions became increase. Many utility companies has windfalls at that time.
Stalwart is a huge company with a robust financial system. They have strong and needed brand products with long experience in that industry, high loyalty customers, and usually, this company became the market leader of each industry. These companies such as Coca-Cola, Procter & Gamble (P&G), Peter Lynch usually collect this stock’s company because they offer good protection during recessions and tough times. Usually, this company still has 10 to 12 percent annual growth in earnings.
These companies sell usually primary products for daily lives. These products as toothpaste, detergents, soap. In the recession time, people usually postpone buying a new car, but they cannot reduce the soap, detergent, and still buy it. Stalwart usually sells primary products than luxurious products.
Company that has Peter Lynch’s favorite investments. These have small, aggressive new enterprise that grows at 20-25 percent a year. A fast-growing company does not necessarily belong to a fast-growing industry. But there is plenty of risk in fast growers, especially in younger companies that tend to be overzealous and underfinanced. They can run out of stamina and turn into slow growers. But for long as they can keep it up, fast growers are big winners in the stock market. The ones that have good balance sheets and generate substantial profits.
A Cyclical company is a company whose sales and profits rise and fall in a regular if not completely predictable fashion. In a growth industry, a company’s business just keeps expanding, but in a cyclical industry, it just expands and contracts. The autos, airlines, tire companies, steel companies, and chemical companies.
In the growth era, cyclical flourish and their stock prices tend to rise much faster than the price of the stalwart. The stock price tends to rise much faster than the price of stalwarts. But going the other direction, the cyclical suffers and drains the investor’s wallet. The cyclical is the most unpredictable of all types, so timing is everything in the cyclical, and some investors must detect the early sign that business is falling off or rising.
Turnaround companies have become battered, depressed. The companies have suffered from this business but still opportunity to rise again because of improvement of management and business innovation. Some companies are wiped out of S&P criteria, the stockbrokers’ recommendations, and market interest. The market starts to fade this company and choose the others that have the brightest business.
6.The Assets Plays
An assets play is a company that is sitting on something valuable, but the wall Street Crowd has overlooked it. They have huge assets. The assets play is where the local edge can be used to the greatest advantage. Metals, oils, newspapers, telecommunication, transportations, and TV Stations are some examples of these criteria. In fact, assets opportunities are everywhere. Sure, they require a working knowledge of a company that owns the assets, but once that is understood, all the investor’s need is patience.
Bibliography of Peter Lynch on Company’s Business Articles
Peter Lynch. 1989. One Up on Wall Street. Simon and Schuster, New York