Chit Chat Stocks - Peter Lynch: Beating The Pros With Common Sense Investing

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Starting point is 00:00:37 platform where you can earn a rebate on every contract traded. Public.com. This is paid for by public investing. Options are not suitable for all investors and carry significant risk. Full disclosures are in the podcast description. Welcome to Chitchat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome in. This is the Chit Chat Stocks Podcast. My name is Brett Schaefer, and as always,

Starting point is 00:01:29 joined by Ryan Henderson. This week on our Wednesday episode, we have one of our investor study, investor overview episodes where we look at a famous investor or maybe someone that is not so famous that has a fantastic track record, someone that essentially has some stuff out in the public sphere, stuff on the internet that we can study and try to learn from. And this time, this month, we're doing Peter Lynch, perhaps the most famous investor besides Warren Buffett, someone who has beat the market with common sense, went on a fantastic run in the 80s and 90s, and then retired. We read the book, one up on Wall Street, read some of his other stuff, read a lot of his work. And now we're going to condense and have a great discussion,

Starting point is 00:02:16 look at some of his insightful quotes, come up with some segments on the stuff he looks for, his criteria, some examples, his investing style. And then we're going to have some discussion questions and talk about how it relates today. We're going to talk about what we learned from studying Peter Lynch and what we hope the listeners can learn from as well, because it's always important to learn from the historical greats. And for someone with his track record, I think There's plenty to learn. There's not too much to worry about there. So before we get into it, you can read any of this report.

Starting point is 00:02:50 Well, I wouldn't call it a report. There's basically show notes. We'll have some quotes. We'll have some links. We'll have some of our thoughts and discussion questions on the Substack, which is a free newsletter that goes along with this podcast. That'll get sent out, and the link is in the show notes. But before we get started, Ryan, maybe any teaser or quick overview or your initial thoughts for this episode on Peter Lynch.

Starting point is 00:03:16 Yeah, I guess it's a little bit of a teaser. I think of all the investors we've studied, Peter Lynch's approach, aside from the scope of like the amount of stocks that he covered, his approach and his process seems the most replicable for the average investor. This is an activist investing. There isn't a quantitative element that the average investor can't copy. His process can be applied to any investor's process. You can certainly take away some of the attributes that he looks for in businesses. So I thought that was kind of fun. He's a really good writer.

Starting point is 00:03:55 He is very good at communicating what to look for in stocks. And the other thing I liked about Peter Lynch is sometimes great investors are a little bit of weirdos. They're kind of very, very nerdy or very intense, I guess. And I thought Peter Lynch was just kind of a funny, seemed like the kind of guy you'd want to work for if you were in the investing realm. I agree. Yeah, that's a great tease. And I think from the title, we'll probably have something around beating the market with common sense stocks or something around that. And that really sums up what his strategy is. Look for common sense things, invest in them, and hold for the long term. The most probably inspired from Peter Lynch and probably maybe

Starting point is 00:04:40 the most famous investor of the 21st century that was inspired by Peter Lynch would be the Gardner brothers over at the Motley Fool, who we will probably study one day as well. But let's move into Peter Lynch. I'm going to do a quick biography. I know this part can get boring, so I'll try to make it about one minute, two minutes here. He was born in 1944, in Massachusetts. His father died when he was young, which meant he had to take up caddying to make money for his family while he was a kid. And then as a caddy, spoiler alert, he learned about investing in stocks. He then went to Boston College, got an internship at Fidelity, and then eventually became an analyst at Fidelity at the age of 25. Likely due to his strong

Starting point is 00:05:17 investing acumen, he was put in charge of the Fidelity Magellan Mutual Fund at 33 years old. So pretty young, but I guess not too young to be in charge of a mutual fund. This was in 1977, which I will say is one of the bleakest periods for equity and stock investing ever for the United States in the last 125, 150 years. I think this is kind of probably not a coincidence that Druckenmiller started around this time as well and had fantastic returns. And then he ran, Peter Lynch ran the Magellan Fund until 1990. the fund returned 29% per year when Peter Lynch ran it, or around double the S&P 500 over the same time. It started with $20 million in assets in 1977 and had $14 billion in 1990. So a strong investor and money manager and marketer. I think this book is one of the best marketing materials

Starting point is 00:06:14 for that fund. And I think he wrote it right when he was preparing to retire in 1990. As a side note, though, I'm curious what you think about this, Ryan, or whether you saw it when researching Peter Lynch. The average investor who put money in the Magellan Fund actually lost money. Why? Because people pile in after really strong performance. So I'm guessing after they had say a year that went up 40, 50%, people piled in and then, well, he probably didn't have that good of year after that, even though the long-term track record for the fund was 29% per year, which is really really good i mean no matter what the fees are that's going to be great i think that's a lesson in betting on the right jockey before the race starts but not after they've won

Starting point is 00:06:56 the triple crown what are your thoughts on that ryan yeah i think this is probably the case with a lot of either securities or funds that have had good performance and then came down as just so many people are piling in at the top it's not too surprising the other part here is 14 billion dollars in 1990 that's a big fund uh and with his diversified approach it maybe would have been a little bit harder and and we're going to talk about how he liked to skew towards smaller stuff um it maybe would have been a little bit harder to generate alpha at that size although i don't think he ever i think he said even at high amounts of aum he was able to perform pretty well throughout the book but it obviously becomes just a tougher game you know in the back

Starting point is 00:07:43 your mind that if you buy a certain stock, that's whatever, $100 million in market cap and you buy 5%, it's not going to move the needle for you. So maybe it kind of pushed the goalpost or pushed what he was looking for. Yeah. And again, yeah, 1990, it wasn't 2000. It was 1990 before one of the biggest bull markets of the last 100, 150 years. Let's get into the basics of Peter Lynch's investing style. We're going to just go through the synopsis. And then after this, we're going to go through different examples, details, examples, and then try to relate it with our favorite quotes and examples from historically to the current day and what we can learn from it. So Ryan, I've been talking a lot. So why don't you go first

Starting point is 00:08:22 on what you thought the basics of his investing style was? Sure. So one thing that you mentioned in your notes here is that, and spoiler alert, you thought he was pretty mentally flexible. So I really agreed on that part. It's not necessarily really that he would just pivot to whatever he thought was the great investment at the time. But he had sort of his core attributes or his core characteristics of what he wanted in an investment. But depending on the environment, he was willing to buy other types of securities. And he actually goes through in his book, I think it's six different buckets that he groups companies into. I don't have them all in front of me right now, but

Starting point is 00:09:09 it would be the fast growers, the stalwarts, the spinoffs. I think there are three others that I'm kind of blanking on. Asset plays, right? Or real estate asset plays. That might not be as relevant today, but maybe not. Maybe it's just not something we ourselves are looking into. Yeah, there were companies that were... He invested all across that spectrum. He tended to skew most towards what he thought would be the fast growers, but he was not afraid to invest elsewhere. So in that sense, I thought he was very flexible. I'll go through how I guess I would describe some of the characteristics of his process. So one thing he loved was underfollowed stories, underfollowed companies. He talks about this a lot there at the book.

Starting point is 00:09:56 He likes when companies are dull, boring, analysts don't follow them. So he was kind of looking under pockets in the market where most people weren't or maybe got too bored the second one he prioritizes growth i show this it doesn't or i spoke about this earlier it doesn't preclude him from investing in something if it's not fast growing but it's he really values a long reinvestment runway which is also something you mentioned in your notes and then the other thing and i think this is probably what i'm guessing most people take away from peter lynch is he loved to he loved anecdotal evidence he loved to kind of try to feel like a part of the company he says it's on the ground right for example the la quinta one which was i think one of his big winning investments back in the day when

Starting point is 00:10:46 it was a really big growth concept he said well even though it's not usually where i stay i went and stayed for three nights investigated the pillows investigated the pools made sure everything was on the up and up and got a good feel that this was actually a quality business and what the management was talking about wind up of what i saw with my boots on the ground that's what people i think mean by when they say boots on the ground today they're taking a lot of that from him yeah i mean they're people will even i don't know if this is that common maybe it's just in investing circles but they're like oh i took a peter lynch approach or whatever i went and like saw got the experience and he even says like i can't remember the exact quote but it's i try to

Starting point is 00:11:27 think like an amateur or i try to invest like an amateur as much as possible like getting back to the basics understanding the business and he really talks a lot about looking around you looking around his world what he's spending money on what his daughters or his wife are spending money on and that kind of thing as sort of his lead for new investments so he values that a lot And then I put here, don't interrupt the compounding. He likes to let his winners run. If you read his book, you will realize he says the word baggers nonstop. He loves when things become multi-baggers, 10-baggers, 20-baggers.

Starting point is 00:12:04 And that's really what he's looking for. And we'll talk about maybe why that is and why he was able to do so well with those. And the last one is just he was willing to do – or he was able to do really well while being very diversified. He says at times he owned upwards of 100 stocks. I think at one point he owned more than 150 savings and loan companies alone. So it's like just savings and loan companies. So he was buying more of a basket in that sense. and that doesn't mean it has to be equal weighted but it's uh it just goes to show that you don't

Starting point is 00:12:41 have to be super concentrated to have outsized performance and i said this earlier but just in general i thought it was very refreshing to look at lynch because it feels replicable for the average investor aside from track you know probably needing a team of analysts to track whatever, 200 stocks. He kept it simple. He was always able to boil it down to the few factors that mattered most. And he never, maybe he did, but it didn't seem like he did. He never got analysis paralysis, which is something I do all the time where you do so much digging. You feel like you have to understand every little facet of the business, understand every nook and cranny of the investment case. And he kept it really simple and it really worked for him. And typically,

Starting point is 00:13:34 I think it just goes to show that you'll learn more about the company as you own it. So you don't have to know everything, every single thing from the get-go. And he just did a really good job of that. What did you think about his overall philosophy strategy? Yeah. So I have a list of five things. I will say from the things you talked about, about under followed stuff or under maybe discuss things. I think an example today is if you spend time on either Twitter slash X or Substack and you're following something that no one is writing about or no one is discussing, that could be a good sign because there are some stocks that always get kind of in the, it's almost like the zeitgeist, the stuff that people are talking

Starting point is 00:14:15 about at parties. I mean, that would be the AI type stocks today or anything really. It kind of has a different feel every year or two. And then another one is when you see a 50-page research report, that doesn't necessarily mean it's better than one that's two pages. And I know we're about to do an hour-long podcast here, but it's a little bit different where I think the discussion, we kind of go off on different tangents. But just because something is long, it might actually be a waste of time for you to read. But let me go through my list. So without finding any direct quotes. I believe he wants to build a portfolio with stocks that have one, a good story that he has validated and or believes in. Like Ryan mentioned there, boots on the ground. He validates

Starting point is 00:14:59 what they're saying, what the numbers are saying versus what he sees out in the real world to a business model he can understand. That's I mean, him and Buffett are very big on that, only focusing on things that they can understand. If you're an expert on biotech, you might invest in biotech. But for him and for us, we focus more on consumer goods and stuff like that. He did – yeah. He was willing to expand his circle of competence though. I mean I guess if you own 100 to 200 stocks, whatever it is, you got to invest in – it's not necessarily something that he doesn't understand but he's willing to advance his understanding of it. He doesn't just write it off because it says it's – they sell medicine or whatever.

Starting point is 00:15:46 I think even he talks about a couple of pharmaceutical companies in the book that he mentions. I don't know if he ended up owning them, but he uses them as examples. So it seemed like he was – yes, he invested in things he could understand, but he was constantly willing to try and expand his circle of competence. Yeah, less stubborn than Buffett where it's only financials or consumer goods companies, right? He was definitely willing to have a little bit more flexibility there. All right, third thing on his list. I think this is important. Something we focus on discussing a lot here is a long runway for reinvestment or growth. Fourth, focus on small undiscovered companies and sectors and inverting that, avoid buying what's hot. I mean, today, for example, after reading this book and his stuff, he would be not touching anything AI whatsoever. Do you agree or disagree with that? yeah uh he talks about everything that what he the kinds of stocks that he tries to avoid and

Starting point is 00:16:46 all i could help i could not help but think nvidia nvidia nvidia or super microcomputer anything data center ai related that's so hot right now yeah that that was the first basket of uh or the first theme that came to mind and the other thing i thought about was because he has a section in his book which is like the stocks i avoid and it's basically like whatever the hottest thing is and i thought well you know if i mention nvidia in the podcast of course it is the hottest thing it's one of the largest companies in the world but people will say oh you know it's different this time this the runway is all there and all that stuff and it's like that's how that's why anything becomes the hottest thing that's why

Starting point is 00:17:32 companies grow you know to huge market valuations and stuff like that so it's it's always easy to rationalize why something is so hot at the time but he did just fine by avoiding those yeah let me close out with my fifth one which maybe you'd think would contradict the last one but honestly I don't think it does. It is. And perhaps the most important thing, letting his winning stocks run, like Ryan mentioned, too. If he bought NVIDIA, for example, 10 years ago. Would he still be holding today? Maybe we do have a section, actually, the next section discussing why he cares so much about size and market capitalization versus any sort of valuation and growth prospects he's going through. But I don't think it would be out of the realm of possibility

Starting point is 00:18:25 that he would still be holding an NVIDIA, a Costco, a Chipotle at a pretty absurd multiple today, but he definitely wouldn't be buying. It's kind of in that no-go zone. All right. I think I have maybe some other things here. Well, okay. Ryan mentioned this too, but he talked about having flexibility and moving into where things are cheap. And he talks about real estate and asset plays, timing cyclicals, special situations, promising subsidiaries of a larger company that people aren't really focusing on. There could be spinoffs along with that. I like this a lot because if you only have the focus on small, undiscovered companies, long runway for growth, basically focusing on growth stocks, well, when you get to eras like

Starting point is 00:19:17 1999 or 2020 and 2021, you're going to be stuck and you might make a lot more mistakes, whether if you have the skills to invest in other assets, well, okay, during that time period, it might be better to have that flexibility. I think a lot of people learned that lesson. We did as well in 2020 and 2021. All right. Anything else on that, Ryan, before we move to the next section on valuation. No, let's talk about why size matters so much in his process, because he talks about this a lot. Yeah, so he does care about size. And when he says this, he means essentially just market capitalization or enterprise value. So his strategy is to find as many companies he believes have a good chance of being 10 baggers that stocks, you know, stocks that go up by 10x

Starting point is 00:20:03 in value. And it is much easier to find this in companies with smaller market caps. Here's a quote about the internet bubble in the 1990s. Quote, on the following page, I also mentioned the bloated 500 times earnings shareholders paid for Ross Perot's electronic data systems at 500 times earnings. I noted it would take five centuries to make back your investment if EDS earnings stayed constant. Thanks to the internet, 500 times has lost its shock value. And so it's 50 times earnings or in our theoretical example, 40 times earnings for dot com dot com. In any event, to become a $100 billion enterprise, we can guess that .com.com eventually must earn $2.5 billion a year. I put my own parentheses in there for 25x reasonable earnings multiple. Only 33 corporations

Starting point is 00:20:50 earned more than $2.5 billion in 1999. So for this to happen to .com.com, it'll have to join this exclusive club of big winners along the likes of Microsoft, a rare feat indeed. So I would adjust that to today's dollars right it's a little smaller than maybe he would give an example for today and dot com dot com is not a real company that was a just a fake example of kind of the dot com naming stuff which we you know you can probably relate to today with things that just have ai in the name but i thought this was a great example where if this company a fake company dot is trading at $100 billion market cap today, and you think it has a chance to earn $2.5 billion if things go right within the next five or 10 years, that makes no sense to buy because you

Starting point is 00:21:41 have capped upside because a company can only earn so much versus how big it is relative to the global economy and versus its sector, its niche, whatever it's in. If you think you can earn $2 billion, even $1 billion in the next 10 years, it might make sense to buy it at a $1 billion market cap. It might make sense to buy it at a $5 billion market cap, even if you think, or sorry, even if they have negligible sales today. But then if you're buying it at $100 billion, that's pure foolishness. And that's why I think he focuses on, and I think if it's not, I don't invest in too many of these types of things, but I don't think I'm opposed to investing in a basket of say high risk, high reward, growthy, small cap stocks, but I want them to be

Starting point is 00:22:27 small caps. I want them in today's dollars probably below a $5 billion market cap with a huge potential runway because a lot of them will be failures, but the ones that win will be 10 baggers and maybe even 100 baggers over the next few decades. Yeah. I like the way he describes that. And I think in general, if you're buying large market cap companies and I'm in this boat, I own Amazon, which is probably a trillion and a half now, maybe a little higher. In between a trillion and a half and two trillion. It's not that you can't own them because even he owned the stalwarts, but your expectations need to be revised. You're not owning that for it to be a multi-bagger. You're owning that for

Starting point is 00:23:15 it to be resilient because it is deeply advantaged and you can generate maybe above market returns, but you should not expect. I don't expect Amazon will be a 10-bagger. If it is, great, but it's highly unlikely. Yeah. And if it is, maybe over 20 years or something like that. Here's what I think a lot of people miss though, when investing in large cap stocks that he hits on, I think a lot of people could learn from, is a, say, market cap threshold for something that trades in a current nosebleed multiple. And I ask to you, do you have any sort of market cap threshold when buying, say, a growth stock at a nosebleed multiple? Because I know Amazon, look at the forward multiple. It's not something that's extremely expensive, that 50 or 60 or 70

Starting point is 00:24:05 times earnings. But I remember looking at something like Snowflake, $100 billion market cap. They were projecting like a billion dollars in cash flow within five to 10 years. And I think those have honestly come down. The company is not doing as well as people thought. Or Shopify, 200 billion dollar market cap probably the same like you could say hey i think this business will generate five billion dollars in earnings in six seven eight years um what do you think on that and do you think people should have that and maybe i have a follow-up on the magnificent seven yeah i mean it's kind of the worst of both worlds right you're getting huge market cap and huge multiple. So they had to fulfill those expectations and then some,

Starting point is 00:24:52 which is harder and harder as the company gets larger and larger. So I guess the two kind of go hand in hand. But yeah, I think we talk about this all the time, which is it's okay to invest in a company where the earnings aren't there, but you should get paid for that risk because it's not always certain that they are going to earn money in the future. So you definitely don't want ones where you're betting on a huge change in profitability and it's already baked in that's kind of the worst case scenario yeah i can already hear the maybe the qqq boys the the growth guys from today listening to this and saying peter lynch was proven wrong the magnificent seven uh has been large and has grown and has had a premium multiple do you think he would have

Starting point is 00:25:36 change his mind with that or do you think people are miss looking at maybe some a few exceptions to the role because i personally think there was quite a bit a few miracles that let tesla survive there was a few uh maybe it was very fortunate circumstances that nvidia has been such a monster winner and if you look at alphabet it hasn't really been that expensive or apple except for honestly it's probably the most expensive it has been today yeah i mean i guess he has been wrong if you look at it you know magnificent seven ten years ago or five years ago whatever it is it's you know vastly outperforming the market the question i think you just have to ask yourself is what can this company grow at you know in apple's case i don't think it can grow that quickly

Starting point is 00:26:31 It might be able to grow earnings at the high single digits, but that's – I'm talking high single-digit percentage, 8% to 10% maybe in a best-case scenario over the next 10 years annually. They just serve a huge chunk of the world already, so it's really hard. But Amazon and Google, companies like that, I think they still have – well, I mean Google is obviously quite large. But Amazon, like AWS for example, when it's a huge earnings driver for the business, I think you could probably forecast earnings growth to be a little quicker than the maker of iPhones and something like that. So I think cloud has probably been the one factor that's really hurt Peter Lynch's argument in this case because it's been – when they have these huge runway businesses where they can invest endless amounts, it allows them to kind of rebuild their S-curve, if you will, where they can kind of tack on extra earnings growth. Yeah. And I think if Lynch was hearing us, he would say, well, no, I would be flexible and look at what I've said previously numerous times about the reinvestment runway. And he would say, look, these companies had the largest reinvestment runway in history. Therefore, it's not terrible to buy them at a $500 billion market cap. All right. So we move on to the next section. And this is the most fun one because everyone likes growth. Everyone likes fast revenue growth. Ryan, why does he like growth? Why

Starting point is 00:28:09 is it important for his investing style? All right. New sponsor alert. This episode is brought to you by our friends at Yellow Brick Investing. Yellow Brick is an aggregator of the best stock pitches across the internet. By tracking thousands of blogs, newsletters, fun letters, podcasts, and more, they collect and summarize the best stock pitches and bring them to you in a single place. Think of it like a modern value investors club. I genuinely use Yellowbrick every single week here to try and discover new small cap ideas for the weekly power hour episodes that we do. And the best part is you get tons of features for free. Try it for yourself. Simply go to joinyellowbrick.com and search a company or

Starting point is 00:28:54 ticker that you're interested in. You are bound to find a great report on just about any company. That is joinyellowbrick.com. Earlier in the show, you heard us talk about the investing platform public.com. That's where you can trade options with no commissions or per contract fees, and you get a rebate of up to 18 cents per contract traded. NerdWallet recently gave public five out of five stars for options trading. If you want to see why, go to public.com and start getting a rebate of up to 18 cents per contract traded, paid for by public investing options not suitable for all investors and carry significant risk. Full disclosures in podcast description, US members only. Yeah. Brett's going to touch on ways to detect companies before a

Starting point is 00:29:43 growth phase, but I'll talk just briefly about why it's important. So here's a quote from this book. He says, you won't find a lot of two to 4% growers in my portfolio because if companies aren't going anywhere fast, neither will the price of their stocks. If growth and earnings is what enriches a company, then what's the sense of wasting time on sluggards? Keep in mind, when he mentions growth, he is talking about growth and earnings. However, the easiest way to get long-term growth and earnings is to grow your sales. So I think probably Lynch probably witnessed this early on in his career. I know he talks about KFC when he was a research analyst at Fidelity. One of his higher ups talked about the growth runway at Kentucky Fried Chicken and it went on to become

Starting point is 00:30:32 20 bagger. So he saw how having huge multi baggers, 20 baggers, 30 baggers, something like that can carry the returns of a portfolio. And I think it's really hard to get. We've talked about this a number of times on the show. It is really hard to get a huge multi bagger purely based on valuation expansion or just more and more people getting excited about the stock. You really need the earnings improvement. And that is the primary driver. Yeah. I mean, if you get both of those, yes, 100%. But the biggest driver in huge multibaggers is going to be growth and earnings, unless you're buying at some ridiculous discount. But he goes on, when he's talking about fast growers, Lynch states, these are among my favorite investments, small, aggressive new enterprises

Starting point is 00:31:25 that grow at 20 to 25 percent a year if you choose wisely this is the land of 10 to 40 baggers and even the 200 baggers with a small portfolio one or two of these can make a career and i think it's maybe it was just the fact that he saw how can carry returns maybe he thought it was more intellectually stimulating to look for these ones but ultimately when you have these huge huge winners. You only need a few to end up doing really well in aggregate. Yeah, I agree. And I think one of the keys there, and he mentioned this, but you don't have it in your notes, is durable 20% growth as opposed to some stock. One of the red flags he looks out for is a company that has recently just accelerated revenue to the 50%, 60%, 70%, even 100%. He is afraid of that

Starting point is 00:32:19 because I think one, he's probably looking at that and saying, okay, well, is that consistent growth or is that some kind of catalyst or cyclicality that is really benefiting them for a short period of time? Or I think a lot of times this happened to the companies that were big winners during the pandemic. It is really hard to manage a company that goes from $100 million in sales or earnings to a billion dollars within a couple of years. That can lead to a lot of chaos and uncertainty yeah it's pretty simple it is hard to grow north of 50 on the top line for a long time like people competitors will come for your business um it's hard to manage a business that way in terms of like employees and hiring yeah company and hiring um and it's a lot easier if

Starting point is 00:33:11 you can just get like two times or sorry, 20% growth over a long period of time. He talked about this a lot, which is he doesn't necessarily want an industry that's growing fast. He wants the fast grower in the slow growing industry. You know, the market share taker in a stable sector is much more attractive to him than the high flyer where everyone else around them is competing for the same business. So anyways, let's talk about trying to identify companies before their growth stage. You got some notes down here on this. What excited you about this segment and what were some of your takeaways? Yeah. So we talked about this over and over in the book. It's something I really want to

Starting point is 00:33:56 take from my own investing style. I think it's something I hadn't really articulated before, but it's something that I think we should focus on more and more and is looking at researching a company's growth stage and whether you can predict anything about its future growth. I mean, a small company with predictable earnings, earnings growth of 20%, like we just mentioned, is the recipe for the 10 or even the 100 beggar. Two examples highlighted in the book are La Quinta and Taco Bell. Remember, this was written in 1990. So they had a growing restaurant concept, Taco Bell, and a growing hotel chain, La Quinta, that were concepts back when Lynch was investing. He likes physical retail concepts that have shown strong returns in a certain region and

Starting point is 00:34:37 are planning to expand around the country. If you can get a predictable 15% return on invested capital, ROIC, and you have the opportunity to go from 200 to 2,000 stores, that stock might be a buy. Now, there are two keys to this type of investment making research, according to him. First is finding out the why for what makes it so successful in its region. So for La Quinta, it was an innovative model that took out some of the costs bloating other hotels, allowing it to offer travelers a good hotel room at a much cheaper price. And competitors would be behind because they can't remodel their existing locations overnight. Just takes so much time and you don't have the money.

Starting point is 00:35:14 You can't spend it all in one year. The second key is seeing if the concept works in another region before investing. He highlights that Taco Bell proved it could work outside of its first market, but that a restaurant chain in the Boston area where he lived did not work when it moved to other areas. But Lynch invested in that Boston area restaurant before it proved using economics outside of Boston, and he lost money. I think there is a lesson there for sure. If a concept works in two separate regions, it will likely work in 10. and if it works in, maybe if you're thinking about a global company, if it works in two countries that are pretty different, it might work all around the globe. I think restaurants

Starting point is 00:35:56 are the quintessential winning stock in this category, really. See some of the big winners of all time, McDonald's, Chipotle, Starbucks. I mean, a lot of times food concepts don't travel or they stay in a local area, but if management teams decide to expand and prove that the whole country enjoys the concept think about young brands pizza hut taco bell kfc there is a long runway for reinvestment and then you have another chipotle now i think a question i didn't write down here is what companies have proven that today i have one i think it is kava oh i thought you were gonna go with something else but kava i think almost everyone has identified that as well so that that one seems like a rock solid uh runaway for reinvestment i'm not sure that peter

Starting point is 00:36:50 lynch would buy at this price because i think it's trading north at 10 times sales for a restaurant concept so i think almost all the future growth is getting priced in as they try to get to a thousand restaurant locations but i'm curious do you have any either recent winners or ones that you're looking at now that maybe fit this criteria i think one that came to mind as you started talking about what it looks for here is portillo's it's something that it's kind of on the cusp right where it's done a little riskier yeah and they're starting that expansion into other regions so if i were someone interested in portillo's the main things i'd be looking at is the the per store growth or even just the anecdotal stuff like you know reading about any sort of

Starting point is 00:37:40 magazines or local newspapers that talk about Portillo's, whether or not there's good like buzz around those stores when they're put in and can they last? Because there's always the sort of honeymoon effect where Portillo's goes in initially in a new market and anyone that's from the Midwest that knows their stores like, oh, they're excited about it, but does it have lasting success in those markets? They are in the process of that expansion. And I would pay a lot of attention to how those new stores do on an ongoing basis and whether or not they're able to produce positive comps if they do start to have success i would say that's probably at the top of my watch list restaurant wise in terms of any sort of retail stocks to own it because it's

Starting point is 00:38:26 unlike kava it is not priced in it's not as expensive yeah and full disclosure i do own that in my portfolio now um i would say yeah it's definitely one where i think they've probably proven given the average unit volumes at the non-chicago area locations they've probably proven that there is demand for these type of stores and they have good margins but it is still a little bit to be determined compared to someone like kava uh as portillo's has had way more inconsistent same store sales growth and one thing i'll probably be doing is just kind of looking at one of the areas i think dallas is one of the biggest new areas just go on google maps and search the restaurants and look at the reviews and see what people are saying i mean the internet

Starting point is 00:39:13 can be beautiful sometimes like that and i think today that's something that a peter lynch style investor would be doing yeah i think it'd be even better if you could get boots on the ground as well we gotta get you moving to texas and then maybe we can reviews i don't know the people that write reviews are always it's never the middle middle of the it's never the middle of the pack it's people that have strong opinions one way or the other so true you can figure out what people are complaining about though and if management's talking about that then maybe that lines up because i i don't just for example on portillo's again the management has talked about improving their drive-thru experience and that they said they've been lacking in some of their operational

Starting point is 00:39:53 efficiencies. Now, if the reviews line up with that, or they have something completely different they're worried about, and management's not focused on that, well, that could be a concern. Yeah. Let's talk about the perfect company. This is what he calls the greatest company of all. I have this in quotes here, but in chapter eight of his book, he describes, and by he, I'm talking about Peter Lynch, he describes the 13 attributes that he looks for in a stock. And And then at the end, he briefly goes over one example of what he would call the perfect company. And if you're interested in learning how to write a good one-pager, I recommend just looking at that specific segment. But we're going to go through the 13 attributes that he thinks are important and we can talk about – maybe we can give our thoughts on whether or not it still applies today and what we can take away.

Starting point is 00:40:43 So I'm going to go number one here and this is the first attribute. in quotes it sounds dull or even better ridiculous he really looked for companies that had very vague or dull names that would not attract people to him and the example he uses here is pet boys manny moe and jack that is i did not know pet boys had all three of the names after in the company name so yeah is that still publicly traded what i don't know i'll look it up but it ended up being a really good performer for him and so the difficulty is we unfortunately don't have the names that existed a century ago where it was you know like standard oil or very descriptive names they're more like esoteric like yeah nvidia or uber like no one

Starting point is 00:41:39 really knows what those mean um so unfortunately we get a lot of one word esoteric names but i have uh i have some big ones yeah yeah go ahead on pet boys you'll never guess who has acquired them in 2016 i guess almost 10 years ago now icon enterprises really yeah well probably hasn't done too well for them given how the troubles they're going through but yeah interesting Yeah. The second one here is not only does it sound dull, but it does something dull, something that is not sexy at all. He goes through a couple examples there, but I'm sure you can think of your companies here. One that came to mind for me is Nelnet. It's a company we own. They originate or they used to originate student loans. It's not very exciting. It's a pretty dull business. I really can't think of servicing and originating student loans. Pretty boring. and yeah or another one i like they don't care yeah another one that pops to mind right now wd-40 pretty boring it's done really well over the long term it's at a pretty premium price now but they sell wd-40 that's what they do second one or sorry the third one here it does something

Starting point is 00:42:54 disagreeable now initially i kind of thought when i read the title i thought sit in stocks you know like philip morris like selling cigarettes or whatever but he calls out a company called safety clean which goes around all the gas stations and provides them with a machine that washes greasy auto parts so he was talking more like disgusting type of companies people where they don't really want to know about the operations um i don't have any that come to mind uh it's like where company goes uh we got to take care of this i don't want to deal with this mess all right i'm going to hire you, whatever the price is, quote me. Sewage companies are a good example. Waste management. Yeah. Waste management. Exactly. A fourth one here, and this is one that I don't

Starting point is 00:43:39 really spend much time on anymore. He says it's a spinoff. So he pays a lot of attention to spinoffs. I can't remember the last time I really invested in a spinoff, but there really aren't even that many spinoffs. I feel like, yeah, I was going to say, are there that many? I mean, One that comes to mind would be Topgolf Callaway. Could be some opportunities there if you like one of those divisions and they are going to spin something off. But I think private equity has ruined this a bit where they're the ones scooping up the spinoffs. Yeah, that's a good point. I know 3M is doing some spinoffs right now, but it's kind of an industry I'm not that familiar with.

Starting point is 00:44:18 Or I think Kellogg did a spinoff and separated themselves out. maybe the big tech one's coming if the regulators have their way but that might not be for a few years but that could be one that he's looking for because it wasn't the key if i'm tell me if i'm misremembering this is that people are forced to sell this yeah that's part of it the and it's usually like people get attracted to the spun-off company but oftentimes it's the company doing the spinoff that ends up benefiting more like i remember reading a study that the returns are typically on average the returns are better for the company getting rid of the business than the business that's spun off and maybe it's because you spin off the most exciting part

Starting point is 00:45:06 or whatever's hottest in the company whatever it's whatever it is i guess uh iac does does this frequently or they used to yeah yeah maybe that's why the reputation hasn't been that strong uh lately because or sorry that category hasn't been that strong because that company hasn't done that well uh to the detriment of me who was a shareholder that lost a little bit of money owning them all right number five the institutions don't own it and the analysts don't follow it now classic classic yeah i mean it's just less coverage it's pretty rare i found that it's quite rare to find a company that has no analysts anymore um it's just like i feel like the coverage is so broad these days that yeah or even someone's talking about it online but

Starting point is 00:45:56 there are so many companies around the world there is so much information now that there are people are like well everything's priced and there is too much information for everyone to be reading or even if you divide it up if you had the whole investment world as a team of animals there are still pockets that are going to be miscovered or undercover yeah all right number six the rumors abound it's involved with toxic waste and or the mafia now i don't think this one quite applies as much today because the mafia unless i'm wrong the mafia doesn't seem to have as much as better at covering it up it could be uh yeah it's definitely doesn't yeah i mean maybe sin stocks a bit but he calls out uh like the casinos and how they were basically like he liked

Starting point is 00:46:53 when businesses when people would say like oh that's run by the mafia or whatever because like you know there were opportunities there where it wasn't the case and what about mexico talks about the casinos oh maybe yeah you could replace it with the cartel i guess now a lot of people just call mexico uninvestable because they say oh the cartel you know has too much influence or whatever um but there are a lot of opportunities down there it seems like so maybe that's the new the new one here the seventh one he calls out is there something depressing about it i like this one he uses a funeral home roll-up as an example i think it was called service corporation international which talk about a vague name um people just don't want to talk about that kind

Starting point is 00:47:39 of thing it's funeral homes especially it's it's a business that i doubt a lot of vc backed companies are trying to get into um it's boring it's the part it's an element of the world that people don't like being involved in um so yeah it makes sense that you could have if you have the right capital allocator in a business like that the returns can certainly be there any thoughts on this one yeah i think that makes sense i'd almost tossed insurance in there because people just find it so boring and also depressing just because a lot of times it's dealing with things that happen that are bad right and i'd also maybe think of there's a terrible narrative out there connotation whether you disagree with this or not is like data tracking

Starting point is 00:48:29 you know analytics on users online i feel like that's one that comes to mind as well where people just get really grossed out or they don't like that at all and then a classic one would be tobacco but i think you're gonna be talking about the next categories that's that's for this one yeah number eight it's a no growth industry he says he has a quote here it says in a no growth industry especially one that's boring and upsets people there's no problem yeah there's no problem with competition you don't have to protect your flanks from potential rivals because nobody else is going to be interested yeah i think cigarettes uh cigarettes is definitely an example here in fact this is in not even a no growth industry it's it's a anti-growth industry i believe and i think

Starting point is 00:49:18 you used philip morris back in 1990 as an example where it's something like oh volumes are declining by two percent but earnings are actually growing at six percent and that can continue for a while now today i think in the u.s they're declining at ten percent so that might be a bit more sketchy for peter lynch or someone to invest in but yeah that's a classic one and no one cares about them and they're going to permanently trade it really cool you the good thing about these ones is that you know the valuation is not going to be demanding at least i think would you still call nicotine consumption generally like as a broad category would you still call that a rational the competition in that space would you still say it's rational

Starting point is 00:50:05 outside of vaping vaping counts okay well that's a small part of it but the only one that's the rational is vaping. Okay. Yeah, that's fair. All right. Number nine, it's got a niche. So I don't know, uh, really carves out its specific sector or carves out a specific, uh, demographic within an industry. Number 10, people have to keep buying it. This is less like, I don't know. He talks a lot about, you know, toy companies or, um, business businesses in the retail space. whereas today so much of the market it seems like is dominated by recurring revenue businesses so it's a little more common today but back in the 1990s software as a service wasn't so commonplace so a lot of the times you had to try and find businesses where it was a repeat purchase like

Starting point is 00:51:01 a gillette razor or coca-cola something like that as opposed to just buying something one-off yeah it's the classic one of buying a coca-cola every day which i want to condone it's pretty unhealthy guess as a listener, but versus the other extreme example is buying a couch or a bed. You do that once every 10 years, maybe even longer. The 11th one here is it's a user of technology. I thought this was interesting because you always think about the company that's innovating and building out the technology, but he was talking about if there's a company that can be benefited by the new technology and shave off a couple percentage points on their costs, they can really inflect margins. So I guess maybe a good example here is

Starting point is 00:51:51 what companies would most benefit from AI? Is it companies that have huge customer support staffs, companies that, you know, something like that, trying to identify the winners or the beneficiaries centuries of that kind of development might be better than trying to find the winners in AI. It's kind of the second order effects. One that came to mind that might be a little different is someone like Netflix that benefited from cloud computing, but not necessarily was as much of a technology company as people thought, even though, you know, it did have the quote unquote algorithm that people still love to hype up and they did have the streaming tech on their end that made them better than other people. But I think they were more of a user of technology and that allowed

Starting point is 00:52:41 them to vastly improve the customer experience. Yeah, that's definitely a good example. Number 12, the insiders are buyers. So here's a quote from him. And I absolutely love this quote. When management owns stock, then rewarding the shareholders becomes a first priority. Whereas when the management simply collects a paycheck, then increasing salaries becomes a first priority. I have noticed that as I've evolved as an investor, at least since I've started, I have started to put way more emphasis on insider ownership. Because if you're a mercenary CEO, you've been working at a different company, you get a nice cushy job as an executive in whatever, some bigger company, do you – your first priority is making sure you

Starting point is 00:53:33 continue to get a paycheck. It's probably what most human beings would do if they were put in that position. But if you own a huge chunk of the stock – and it's important to qualify what good insider ownership is. If someone owns 1% of the stock but they're independently wealthy and they don't really need it or their salary makes up the majority of their compensation, they're getting huge options packages no matter what, that's not great insider ownership. If 95% of someone's net worth is tied to the value of their equity, then there is all the incentives in the world that are aligned with you. They are perfectly aligned to benefit you in the same way it would benefit them. Yep. And that's why when we look at companies, we would like to look at how the

Starting point is 00:54:19 executive team is getting compensated. And if they're getting stock, it's a big difference between we're giving you restricted stock units no matter what versus you have performance hurdles for getting various stock units and looking at a company that, you know, the guy might have a bunch of stock options or sorry, the CEO might have a bunch of stock options, but if they're selling them every month and it's really just a one, you know, one extra step to getting cash that has no insider ownership, that's really not the same. And I'd be curious with the rise of these stock option and modern stock option packages what someone like lynch would think about think about it finchat.io is the complete stock research platform for fundamental investors they have

Starting point is 00:55:02 all the standard financial data on more than a hundred thousand stocks globally but beyond that they have company specific segment and kpi data on 1800 stocks want to see nvidia's data center revenue finchats got it like to track spotify's premium subscribers they've got that too and they just added ETFs to the platform as well. The breadth of FinChat's data is truly one of a kind. We use FinChat every day, and I've personally been using the AI co-pilot more and more to summarize earnings calls and conference transcripts. To get 15% off any paid plan, go to FinChat.io slash chitchat. That is FinChat.io slash chitchat. To get 15% off any paid plan today. The link is in the show notes. Yeah. Number 13, pretty simple here. The company

Starting point is 00:55:50 is buying back shares. This is one we followed for a long time. And when you see an inflection in the buyback, when they start to really put more money towards it, especially I've noticed when a company has like a dual capital allocation strategy where it's like debt pay down and like continuous debt pay down and buybacks or something like that, or even like dividends and buybacks or you know some combination of the three when they start to skew more towards the buybacks that for me is a big signal like if they're willing to put a pause or slow down the debt payments in favor of the buybacks it shows you what they think of the security at the time which of these 13 attributes do you like the most and which one if any do you want to start

Starting point is 00:56:37 prioritizing more in the future okay i like buying back stock insider ownership i like people have to keep buying it because i think even today when you talk about company moving from small to larger like that can really help in your returns i know it's not fundamental analysis but that's beneficial if you buy a small company that's going to graduate after you see this earnings growth inflection. I like no growth industry. I like the first three, you know, sounds dull, it does something dull, it does something disagreeable. I like the stuff where people either get turned off by it just by hearing what it does. For example, for me, I know I'm going to be the stuff in my own portfolio and watch list comes to mind. So really, I know the listeners

Starting point is 00:57:21 can probably hopefully, you know, have stuff for their own portfolio. It's not gonna be the exact same in mind. But go go comes to mind for those three people initially think about it with that horrible in-flight Wi-Fi service that they used to own. The name is weird. It doesn't make any sense. And it does something kind of, I guess, not disagreeable, but people hate, you know, they have a terrible association with internet on planes. That's what I'm trying to say. So that makes sense for that one to me. And I do like the names that are obscure because when the stock's Chipotle, well, you know what it does and everyone knows what it does. absolutely um i think the doing something dull that for me is maybe something i'll prioritize

Starting point is 00:58:09 more in the future the especially with like financials it seems like a lot of people just don't want to do the work with financials and or they just you know it's boring they think how fast can it really grow but ally for example has been one of my best investments over the last year or two years and it was just you know the thesis was pretty obvious i thought it was there very clear and they people just ignored it because it was in most of the time they would just ignore it because they just lump it in with banks and obviously it is a bank but it grows a little quicker because it offers people a better savings rate i love companies like that situations like that. So a dole category is a market share taker and a dole category is something I'm going to try

Starting point is 00:58:57 to look for a little more. Yeah. I think this is related to what he's talking about, but it reminds me again, you just talked about it here. It reminds me of when we talked about with Ian on Mexican stocks is when you mention a sector, a country, a specific company, and 90% of the people immediately have some comeback, like I never invest in a financial. It could blow up or I never invest in Mexico. The cartel is dangerous, blah, blah, blah, blah, blah. And you are confident that that's kind of nonsense and you have pretty high conviction in that.

Starting point is 00:59:28 Well, a lot of people are disregarding it for no reason. And if you're right, there could be a big opportunity there. Exactly. All right. Next segment, we had stocks he avoids. We already talked about that a little bit. Just it's the hottest thing. And whatever is the hottest in the market,

Starting point is 00:59:46 he tends to avoid it and he keeps it really simple. That's what he says. any stocks that come to mind other than the big ai other than nvidia oh other than nvidia the okay costco chipotle uh some of these retail or restaurant concepts that are getting very premium multiples the expectations are high because they are great businesses but it's almost like they're getting priced like they can do no wrong and there is definitely low risk to the Costco business model, but I don't think there's low risk to the stock right now. I do not think he would do that in Costco. No, I agree. All right. Let's talk about this

Starting point is 01:00:26 other one, which is sort of the valuation side of things. Because valuation is not the first thing that comes to mind when I think Peter Lynch, but it's something that he does talk about in the book. So let's go through it. How does he look at valuation? Yeah, one thing, he invented the peg ratio. A lot of people hate on the peg ratio, and I think that's because earnings growth is hard, and I'll get into what it is. And some people, you know, you can slap on any growth rate you want and say, oh, the peg ratio is low.

Starting point is 01:00:54 But here's how he did it, and I think it's a good rule of thumb to kind of think about when looking at a stock. Quote, assume we are comparing two different stocks and both have a price to earnings ratio of 30. On the surface, they may look the same, but now let's look at the growth rates. Let's say company A is growing earnings at 40% while company B is growing at 15%. Company A has a peg of 0.75 while company B has a peg of 2. Lynch said that as a rule of thumb, he buys stocks where he believes the earnings growth

Starting point is 01:01:23 will be greater than the PE. So if he buys a stock at a PE of 10, he wants it to grow earnings by 10% or more. If he buys it at a PE of 15, it needs to be growing at 15%. At 30, it needs to be growing at 30%. This is very simple on its face, but predicting earnings growth is hard. You can look at, as I mentioned, any company and saying the future growth will be incredible. You know, Shopify in 2020, it's going to grow at 100 percent forever. Right. And then you can excuse yourself from buying 40 times earnings.

Starting point is 01:01:51 Now, most of the times, even the great companies, Google's an example, right? Maybe the best company business model of all time. It grew earnings durably about, I think, 20 to 25 percent over a 20 year period after it went public. um and yeah there's you know there's exceptions to the rule of company obviously that's going from a zero percent operating margin to five well that's infinite growth or if it's at a cyclical trough or it's unprofitable but i'm saying for someone that has not a margin inflection or a super depressed earnings or it's not a cyclical i think this is a great rule of thumb and here's a scary discussion question for you ryan is there a single large cap stock out there today that

Starting point is 01:02:32 passes this test i'm gonna go up on the market capitalist right now and maybe maybe look at some for you any come to mind oh where the next year's earnings growth will be higher than the current pe yeah i'm gonna go through the list of the largest companies by market cap in the world apple no nvidia no microsoft no alphabet no amazon uh no low chance but but yeah the earnings is a little weird there but i'd say no meta not anymore all right skipping berkshire hathaway but i should note about to the trillion dollar market cap big milestone uh tsmc i don't really know the earnings multiple there but okay let's go through ones that you might know uh visa no mastercard no costco absolutely not

Starting point is 01:03:34 coca-cola no yeah see are they that high on the market cap list uh no i was just going down to ones that people would recognize their 31st 300 billion dollar market cap okay one that comes to mind for me maybe paycom it's not a it's not a large cap by any means but yeah they i think credit roughly i mean it's earnings which is not the actual figure you should use for them but i think it's like 15 or 16 times earnings there's the possibility that they could grow earnings faster than that yeah i think that's scary to me that his quote doesn't really hold up for a lot of these companies i think that that it's a bubble but there's a i don't know how many large cap stocks you'd be buying right now well we have longer time horizons than he did yeah

Starting point is 01:04:26 exactly exactly there's a lot of excuses we can make i just hopefully for any listener that's a sobering look at things and i know people are averse to the peg ratio because you're predicting earnings growth but again good rule of thumb now let's close things out with the last section on avoiding macroeconomic doom i'm not going to read the full quote but in the newsletter there's a very interesting quote he's kind of funny about it um he has some good perspective in the book and i think it's good to close out the episode on this talks about you know an ominous message repeated over and over and this is again in the 1980s and it's the drumbeat around the m1 money supply he talks about how he doesn't really know what it is uh he talks about how everyone seems

Starting point is 01:05:12 to care but no one really seems to know what it means it's too growing too fast now is it growing too slow you know and then he says now we've suddenly heard nothing further about the m1 money supply and our attention is diverted to the discount rate that the fed charges member banks how many people know what this is you can count me out once again how many people know what the fed does uh and he said something about how everyone thinks it's a brand of whiskey or a native reservation or a wildlife preserve some people think it's a prison now right we're gonna lock you up at the federal reserve i think that's because there's that movie from will ferrell and did you say whiskey brand is that what you said yeah that's not bad it's not a bad joke but

Starting point is 01:05:51 these are i think people have focused to m2 now not sure why but these are things that the same macroeconomic doomers have been talking about right now they care so much about what the fed's going to do and how it's going to impact loans and blah blah blah blah they care so much about the m2 money supply how it's impacting inflation blah blah blah i think it's a crap shoot i think he thinks is a crapshoot i think he actually in this quote is understating how much he actually understands about how the federal reserve and the treasury and kind of the macroeconomic stuff works but he's saying he doesn't understand it because he knows that it's just going to cause him harm when trying to buy quality companies at a reasonable valuation you know is the macro stuff

Starting point is 01:06:35 fun to talk about yes i'm not i like talking about it sometimes inflation is fun to talk about i guess but should it impact your investment portfolio i don't think so and peter lynch given his track record is another person along with buffett that says almost all the time ignore the macro fear yeah all right let's wrap things up two takeaways from studying peter lynch we can make them quick do you have any on top of your mind uh let me think while you're talking uh because you have yours written down and then i think i can come up with two though Okay. Number one for me is stay alert. He talks all about boots on the ground and analyzing just the world around him. And it kind of, Jason Moser once said, we interviewed him like when we first started the podcast and he said, investing is just all about understanding the world around you. And I think that's a hundred percent true. For me, I'm going to try to start doing this. Pay attention to what services provide value to me. Pay attention to what I'm spending money on. So the bank account check, like going through, reviewing my bank account and seeing where I'm allocating money on a regular basis.

Starting point is 01:07:46 And if that is a publicly traded stock, dig into it a little bit. Use that as sort of lead generators. Second one for me, you don't have to be super concentrated. This is something that I've always kind of been on the fence on. Do I want to be super concentrated? Do I need it in order to outperform? I think it's more fun to own. I think it's more fun and it's proven that you can do just fine with 20, 30 stocks in your portfolio. Doesn't mean it needs to be equal weighted. You can own

Starting point is 01:08:17 a bunch and just let your winners run and evolve your position or adjust your position over time as your shareholder. So I think I'm getting more and more comfortable with the fact that I can add more than 10 stocks in my portfolio. Yeah. I think it's difference between having 10 or sorry, 100 at each at a 1% position. And again, letting the winners run. People talk about the Motley Fool and you hear a lot of pushback. Well, they've recommended 300 stocks. The key is they've said never sell our recommendations. And then you get Netflix, which ends up being 50% of the portfolio, makes up for a lot of those losses. And that's where the returns come from and why they beat the market over the long term. Peter Lynch, I think is similar. My two takeaways,

Starting point is 01:09:00 first one, big one, look at the reinvestment runway or look at the growth runway, especially for physical retail concepts that can expand nationally or internationally. And second, it's one we talk about a lot. It's one that people have probably heard of before, and you just talked about it. Let your winners run. Unless again, the thesis breaks, but assuming the thesis doesn't break, unless it is becoming a huge mega cap stock at a premium earnings multiple, you probably should just keep letting it run. All right, I think that's going to do it. Ryan, anything else before we close out this episode? I'll maybe give a tease on some of the upcoming potential episodes we're going to do.

Starting point is 01:09:46 What? No, I got nothing else. It was fun studying Peter Lynch. What investor do you want to do next? Any idea? I was going to say David Gardner, but it's too similar. So maybe we should save that for a couple quarters down the line. I got nothing. What about the Ackman, the general? The general? That could be fun.

Starting point is 01:10:05 I know he's kind of become more of a, maybe he would describe it a renaissance man now. Some people might call it the general, focusing on military strategy, but we'll obviously focus strictly on his investing strategy. That could be a fun one. He's public about it. And it's definitely stuff that we understand. you know all right yeah that could be a good one i like it let's take us out yeah as a tease for future episodes i'm going to be doing a research report on remittly interesting one in the

Starting point is 01:10:32 remittance space we're hopefully going to have some interviews on rocket lab little electric vehicles update potentially some other ones which could be fun and ryan is going to have another stock research report although i don't think you've picked out what it is but yeah a lot of fun stuff. We're going to be studying great investors, studying stocks, interviewing analysts, and more as we hopefully bridge the gap between last earnings season and this one. All right, let's hit the disclosure. We are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan and I are any podcast guests, may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the

Starting point is 01:11:11 future. Thank you everyone for listening. Hope you learned a lot. We'll see you next time. We'll see you next time.

Chit Chat Stocks - Peter Lynch: Beating The Pros With Common Sense Investing

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