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Entrevista de Peter Lynch para Barrons: "Hay escasez de compañías growth"
Peter Lynch Draws on 50 Years of Stock-Picking to Find Growth Opportunities in Today’s Market
Barron’s: What are your insights since retiring from Magellan?
Peter Lynch: After 50 years of doing this professionally, it reinforces that growth stocks are better than nongrowth stocks. Growth stocks, by definition, are where sales have really grown. People confuse it with earnings going up, but [if you just look at earnings growth] you mix in turnarounds and cyclicals. A company can go from losing money to a 2% margin, to a 12% margin, and earnings are up sixfold—but that’s not a growth company.
Passive management has stomped active.
In terms of attracting assets, yes, though not at Fidelity. Joel [Tillinghast, manager of Fidelity Low-Priced Stock (ticker: FLPSX)] has done it [beaten his benchmarks], Will [Danoff, manager of Fidelity Contrafund (FCNTX)] has done it, Steve Wymer [manager of Fidelity Growth Company (FDGRX)] has done it. We have 10 or 15 funds that have beaten their benchmarks for 10, 15, 20, 25 years now.
What characterizes a great company?
My best stocks have been ones where I didn’t have to worry about the big picture. A company with a better mousetrap, a growth company in a non-growth industry. Stop & Shop and Dunkin’ Donuts are two incredibly successful local companies. The question is, how long is the story? I wish I had been to Arkansas and gone to see Sam Walton of Walmart. Ten years after Walmart went public, it was a 25-year-old company. It was up tenfold. I said, “Ooh, I missed that one.” Then it went up 50-fold. Sherwin Williams earnings are up 20-fold since I managed the stock in Magellan. The professional painter in our little town goes to Sherwin Williams, not to Home Depot. Why didn’t I look at Sherwin Williams? Why didn’t I spend an hour on that? So staggering, dumb, or just lazy. I thought it was the last inning of the ballgame, without doing the research.
You can’t make these conclusions without some basis. Really bad American fast food has done brilliantly overseas. There are 1,400 McDonald’s in France. You want to be in [the stock] in the second inning of the ballgame, and out in the seventh. That could be 30 years. Like the people who were really wrong on McDonald’s. They thought they were near the end, and they forgot about the other seven billion people in the world.
The lists of companies in your books are quaint. They’ve mostly been disrupted.
That’s why you ought to write down, “Why am I owning this?” Cheap is different from a [good] story. There’s a great expression on the Street: It’s always darkest before pitch black. Wait until something’s gotten better. I made a lot of money on Bank of America. I’m not saying it’s a buy today. But Bank of America [during the financial crisis] went from $18 to $7. They had to borrow money wholesale. I knew they couldn’t go under because they were 120% retail funded. They had FDIC [protection]. They went up a lot after that.
How would you update your advice today?
If you cannot find growth companies in innings three through five of the ballgame, look at turnarounds, special situations, back at the cyclicals. There’s a real shortage now of growth companies. That is a red flag, because all the money is flowing into [a few companies]. There’s an end to that game. It will scare me if this trend continues for a couple more years.
What’s your view of unicorns?
That’s a big difference today—companies stay private a lot longer. The next Google might stay private for an extra 10 years. That makes it more difficult [for individual investors]. The day they come public, a thousand organizations have looked at it, and they’re probably pretty fairly priced. Fidelity can put 5% of funds into these things. The public can’t do that. I’d rather look at something that’s been around for a long time.
Which CEOs do you like?
Satya Nadella really turned around Microsoft [MSFT]. Dan Amos of AFLAC [AFL] is the longest-running CEO in the country after Warren Buffett. And how do you leave out the late Lee Iacocca [former CEO] of Chrysler?
Where are the opportunities now?
I’m looking at industries that are doing badly; that for some reason will get better. Shipping. If you want to buy a ship, it’s a two- or three-year wait. People haven’t ordered ships for a long time, because by the time one comes in, prices may be down again.
Energy services is awful; that could have a major turn in the next year or two. Oil is interesting. Look, longer term, solar, windmills really work. But you need natural gas and oil to bridge to this. Everybody’s assuming the world’s going to not use oil for the next 20 years, or next year. China might sell five million electric vehicles next year, but they might also sell 17 million internal combustion engines. They don’t have old cars to retire. There are no electric airplanes. Near term, liquid natural gas and liquid petroleum gas might replace diesel fuel for trucks. I’m buying companies that I don’t think will go bankrupt. They’ve got to be around the next 18 to 24 months, or I have no interest.
Can we ask which companies?
No. I can’t recommend stocks anymore.
Anything else do you want investors to know?
If you’re going to invest, you have to follow certain rules. If you want to ski, you ought to go to the bunny hill and learn how to stop. It doesn’t make you an Olympic skier, but then in certain cases, you have an edge on the Fidelitys of the world. You might be in the cement industry, and suddenly orders pick up. You can see things better. The one thing I want everybody who is buying individual stocks to get is that they have to understand the story, the five reasons something is going to go right for the company. If you can’t convince an 8-year-old why you own this thing, you probably shouldn’t own it. Don’t invest in a company before you look at the financials. If you made it through fifth grade, you can handle the math.
https://www.barrons.com/articles/peter-lynch-how-to-find-growth-opportunities-in-todays-stock-market-51576877980
Barron’s: What are your insights since retiring from Magellan?
Peter Lynch: After 50 years of doing this professionally, it reinforces that growth stocks are better than nongrowth stocks. Growth stocks, by definition, are where sales have really grown. People confuse it with earnings going up, but [if you just look at earnings growth] you mix in turnarounds and cyclicals. A company can go from losing money to a 2% margin, to a 12% margin, and earnings are up sixfold—but that’s not a growth company.
Passive management has stomped active.
In terms of attracting assets, yes, though not at Fidelity. Joel [Tillinghast, manager of Fidelity Low-Priced Stock (ticker: FLPSX)] has done it [beaten his benchmarks], Will [Danoff, manager of Fidelity Contrafund (FCNTX)] has done it, Steve Wymer [manager of Fidelity Growth Company (FDGRX)] has done it. We have 10 or 15 funds that have beaten their benchmarks for 10, 15, 20, 25 years now.
What characterizes a great company?
My best stocks have been ones where I didn’t have to worry about the big picture. A company with a better mousetrap, a growth company in a non-growth industry. Stop & Shop and Dunkin’ Donuts are two incredibly successful local companies. The question is, how long is the story? I wish I had been to Arkansas and gone to see Sam Walton of Walmart. Ten years after Walmart went public, it was a 25-year-old company. It was up tenfold. I said, “Ooh, I missed that one.” Then it went up 50-fold. Sherwin Williams earnings are up 20-fold since I managed the stock in Magellan. The professional painter in our little town goes to Sherwin Williams, not to Home Depot. Why didn’t I look at Sherwin Williams? Why didn’t I spend an hour on that? So staggering, dumb, or just lazy. I thought it was the last inning of the ballgame, without doing the research.
You can’t make these conclusions without some basis. Really bad American fast food has done brilliantly overseas. There are 1,400 McDonald’s in France. You want to be in [the stock] in the second inning of the ballgame, and out in the seventh. That could be 30 years. Like the people who were really wrong on McDonald’s. They thought they were near the end, and they forgot about the other seven billion people in the world.
The lists of companies in your books are quaint. They’ve mostly been disrupted.
That’s why you ought to write down, “Why am I owning this?” Cheap is different from a [good] story. There’s a great expression on the Street: It’s always darkest before pitch black. Wait until something’s gotten better. I made a lot of money on Bank of America. I’m not saying it’s a buy today. But Bank of America [during the financial crisis] went from $18 to $7. They had to borrow money wholesale. I knew they couldn’t go under because they were 120% retail funded. They had FDIC [protection]. They went up a lot after that.
How would you update your advice today?
If you cannot find growth companies in innings three through five of the ballgame, look at turnarounds, special situations, back at the cyclicals. There’s a real shortage now of growth companies. That is a red flag, because all the money is flowing into [a few companies]. There’s an end to that game. It will scare me if this trend continues for a couple more years.
What’s your view of unicorns?
That’s a big difference today—companies stay private a lot longer. The next Google might stay private for an extra 10 years. That makes it more difficult [for individual investors]. The day they come public, a thousand organizations have looked at it, and they’re probably pretty fairly priced. Fidelity can put 5% of funds into these things. The public can’t do that. I’d rather look at something that’s been around for a long time.
Which CEOs do you like?
Satya Nadella really turned around Microsoft [MSFT]. Dan Amos of AFLAC [AFL] is the longest-running CEO in the country after Warren Buffett. And how do you leave out the late Lee Iacocca [former CEO] of Chrysler?
Where are the opportunities now?
I’m looking at industries that are doing badly; that for some reason will get better. Shipping. If you want to buy a ship, it’s a two- or three-year wait. People haven’t ordered ships for a long time, because by the time one comes in, prices may be down again.
Energy services is awful; that could have a major turn in the next year or two. Oil is interesting. Look, longer term, solar, windmills really work. But you need natural gas and oil to bridge to this. Everybody’s assuming the world’s going to not use oil for the next 20 years, or next year. China might sell five million electric vehicles next year, but they might also sell 17 million internal combustion engines. They don’t have old cars to retire. There are no electric airplanes. Near term, liquid natural gas and liquid petroleum gas might replace diesel fuel for trucks. I’m buying companies that I don’t think will go bankrupt. They’ve got to be around the next 18 to 24 months, or I have no interest.
Can we ask which companies?
No. I can’t recommend stocks anymore.
Anything else do you want investors to know?
If you’re going to invest, you have to follow certain rules. If you want to ski, you ought to go to the bunny hill and learn how to stop. It doesn’t make you an Olympic skier, but then in certain cases, you have an edge on the Fidelitys of the world. You might be in the cement industry, and suddenly orders pick up. You can see things better. The one thing I want everybody who is buying individual stocks to get is that they have to understand the story, the five reasons something is going to go right for the company. If you can’t convince an 8-year-old why you own this thing, you probably shouldn’t own it. Don’t invest in a company before you look at the financials. If you made it through fifth grade, you can handle the math.
https://www.barrons.com/articles/peter-lynch-how-to-find-growth-opportunities-in-todays-stock-market-51576877980