There’s a reason that just about every seasoned investor recommends this book. Lynch goes into detail explaining how the small-time retail investors can out-wit the professionals. Small, illiquid companies in boring industries with boring names; companies producing fantastic new products/services that we see emerging around us as consumers each and every day (that sometimes take the pros years to realize), and companies with a small niche are all areas to look for that Lynch highlights.
This book shows that the professional investors, the managers of large institutions and hedge funds, are often placed under very strict guidelines. Since funds are beholden to the masses who invest in them, they very often have arbitrary rules and limits applied to their investment choices (to appease their investors). Certain market caps are often required. Certain industries are avoided. Certain names are preferred (if you buy AAPL for your fund and it goes down, the investor will think “what’s wrong with AAPL lately?” but if you buy a small, unknown company, the investor will think “what is wrong with my investment manager lately?”). Certain stocks cannot be purchased because they are simply too illiquid. The list goes on, but the point is that retail investors do have some key advantages over the large institutions in certain respects. While institutions do have more access to high-priced analyst reports and condensed data, it is at least possible for us little guys to find ways to out-wit the pros.
Peter Lynch, in essence, tries to look where nobody else is looking when making his investment decisions.
What managers want to attract large amounts of investors by investing in extremely boring and dull industries? What managers are turned on by stupid, boring names? What managers wants to (or can) invest in highly illiquid stocks? Lynch looks for these boring companies, preferably with no analysts covering them, and no institutions holding or buying them, because very often that’s where the real value lies.
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