Video Link: https://youtu.be/5xzuyvuz-0Y
In this episode, Peter Lynch talks about how everyone has their own edges in investing but most of them throw away.
In this episode, you’ll learn:
How to find your edges in investing?
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PETER LYNCH 00:00
You need an edge to make money, too. People have incredible edges and they throw them away.
I’ll give you a quick example of Smith Kline. This is a stock that had Tagamet. You didn’t have to buy Smith Kline when Tagamet was doing clinical trials. You didn’t have to buy Smith Kline when Tagamet was talked about in the New England Journal of Medicine or in the British version, Lancet. You could have bought Smith Kline when Tagamet first came out or a year after it came out.
Let’s say your spouse, your mother, your father or you are a nurse, you are a druggist, or a physician writing all these prescriptions. Tagamet was doing an amazing job of curing ulcers. It was a wonderful pill for the company because if you had stopped taking it, the ulcer came back. It wasn’t a crummy product, you took it for a buck and then it went away but it was a great product for the company.
You could have bought it two years after the product was on the market and made 5 or 6 times your money. I mean all the druggists, all the nurses, all the people, millions of people saw this product, but they’re out buying oil companies or drilling rigs. It happens.
And then three or four years later Glaxo, an even bigger company, a huge company, a British company, bought Zantac which was better, at that time, an improved product. You could have seen that take market share and do well. You could have bought Glaxo and tripled your money.
So you only need a few stocks in your lifetime. They’re in your industry.
If you’d worked in the auto industry – let’s say you have been an auto dealer for the last 10 years – you would have seen Chrysler come up with the minivan. If you were a Buick dealer, a Toyota dealer, a Honda dealer, you would have seen the Chrysler dealership packed with people. You could have made 10 times your money on Chrysler a year after the minivan came out.
Ford introduced the Taurus Sable, the most exceptional line of cars in the last 20 years. Ford went up sevenfold on the Taurus Sable. So, if you’re a car dealer, you only need to buy a few stocks every decade. When your lifetime is over, you don’t need a lot of five-baggers to make a lot of money starting with $10,000 or $5,000.
So in your own industry you’ll see a lot of stocks, and that’s what bothers me. There are good stocks out there looking for you. And people just aren’t listening and they're just not watching.
And they have incredible edges, people have big edges over me. They work in the aluminum industry. I see the aluminum industry coming back; the inventory is coming down six straight months, I see demand improving. In America today, you know, it’s hard to get an EPA permit for a bowling alley, never mind an aluminum smelter. So you know when aluminum gets tight, and you just can’t build seven aluminum smelters. So when you see this coming, you can say, “Wait a second. I can make some money.”
When an industry goes from terrible to mediocre, the stock goes north. When it goes from mediocre to good, the stock goes north. When it goes from good to terrific, the stock goes north. There are lots of ways to make money in your own industry. You can be a supplier in the industry. You can be a customer.
This thing happens in the paper industry. It happens in the steel industry. It doesn’t happen every week, but if you’re in some field, you’ll see it turn. You’ll see something in the publishing industry. These things come along, and it’s just mind-boggling that people throw it away.