Experienced value investors often develop a degree of specialisation within the overall school of value investing - still emphasising (a) thorough analysis of the underlying business, (b) margin of safety, (c) looking for reasonable returns not extraordinary, and (d) exploiting the mistakes of Mr Market in his moods, but applying these ideas in different ways.
Peter Lynch, for example, recognises six categories of companies: slow growers, stalwarts, cyclical, asset plays (plenty of unrecognized value in the balance sheet), turnarounds and fast growers (or niche shares). While his portfolio encompassed all categories, his favourite category is niche companies. Slow Growers These are companies which, while they might once have started out as fast growers, ran out of steam, lost their momentum, reached market saturation, or just get complacent and tired. Most, if not all, industries slow down in time, but these slow growers do have one advantage; they pay dividends. This can be attractive to the amateur investor, as he/she receives some income, but is not taking too much risk. Dividend payments often attract investors, and cash piles up in the company, enabling it to finance expansion when needed, or pay extra dividends out if the company runs out of ideas for future growth. Stalwarts These are usually well-establi
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Those of you who have been reading my newsletters for a couple of years will already be familiar with the stories of investment triumph and disaster in the third volume in the series of books on Buffett's deals - those newsletters are still available to you. However, for anyone who might want a book version, I thought I'd let you know that it is now out. Glen
The amateur investor is free from any list of rules that make life so difficult for the professionals and he is able to buy into small and medium-sized firms offering the greatest percentage gains, rather than diversify into poorly understood shares.
He/she need only own a few shares; which permits time to understand an industry and look for exciting new developments; he/she doesn’t have to explain to a committee why or what he is buying or selling; he doesn’t have to compete with other investors or publish his results on a quarterly basis. In Peter Lynch’s judgement the amateur who concentrates on the study of the companies in an industry he or she understands can outperform 95 per cent of professional fund managers. The private investors’ edge comes from the knowledge they are able to accumulate about specific companies and industries. They are able to observe great growth prospects long before the professional get to hear about them. Investors can first encounter 10-baggers quite close to home. The average person comes across a good investing prospect two or three times a year just by being out and about. Go shopping Peter Lynch is a great believer in getting investment ideas directly from experience, and one of his favourite sources is the shopping centre near his home town. Any amateur investor could easily do the same in their own patch – browse through scores retail/hospitality enterprises. He thinks going through the Mall is a great form of fundamental analysis where the investor can see a long line of potential investments all neatly arranged side by side for the convenience of shoppers for equities. This is a far more valuable way of spending time than attending investment conferences. Search far and………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1 Peter Lynch, a very successful professional investor, is astonishingly scathing about his profession. His number one rule is to stop listening to the professionals! He is convinced that ordinary people ‘using the customary 3 per cent of the brain’ can perform just as well, if not better, than the average ‘expert’.
He really believes that there are a lot of dumb investing decisions made by those who are paid large salaries and bonuses to look after other people’s money. On the other hand the amateur has many built in advantages that could lend to market out-performance – and out-performance of the professionals. The professionals face a number of constraints that the amateur can avoid. There are social and political obstacles stopping fund managers being different from the crowd. If they take a chance and it turns out badly then they will be blamed – it is better for them to go along with the crowd. Then, there are all the institutional rules and regulations that prevent rational investing:
The Oxymorons Lynch and Warren Buffett use this term to describe professional fund managers, who they think fail to qualify as investors as they understand the word. What is it that these pe |
Glen ArnoldI'm a full-time investor running my portfolio. I invest other people's money into the same shares I hold under the Managed Portfolio Service at Henry Spain. Each of my client's individual accounts is invested in roughly the same proportions as my "Model Portfolio" for which we charge 1.2% + VAT per year. If you would like to join us contact Jackie.Tran@henryspain.co.uk investing is about making the right decisions, not many decisions.
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