MONROE KARMIN 00:00
We have – as you can imagine – many questions about where people should put their money. I’ll divide it into two parts, and you can address it.
This questioner intends to put $1,000 yearly into their four-year-old daughter’s education fund. Where should it be invested?
The other question covers everybody else: What are some of your current market favorites and why?
PETER LYNCH 00:35
On the first one – and this is important whether you’re investing for a four-year-old, a 14-year-old, or a 74-year-old – you have to say, “What am I going to do when the market goes down?”
I’ve had audiences like this – large audiences – and I said, “How many people in the room are short-term investors?” I’ve never had anybody raise their hand. I mean everybody in the world is a long-term investor until the market goes down.
I remember 1990 was so much scarier than 1987. In 1987, the market just fell down. You call up companies, and they say, “Our business is terrific. We’re about to announce a stock buyback. We’re already buying back stock. Business is great, and we can’t figure this out.”
But 1990 you had Iraq invaded Kuwait. You had the banking system on the ropes, I mean close. You call up a company and they say their business was slowing down. We sent 500,000 troops to Saudi, and we’re about to fight what people thought was the fourth largest army in the world. Some said they were the toughest army in the world. This was going to be a terrible war, and we ought to sit them out. Remember the big theory?
A lot of people in this city said we ought to wait them out. We’d still be waiting for them in 120 degrees, about 500,000 people. I mean I think Bush made an incredibly brave decision on the information he was getting to go in there and knock them out or we’d still be there. But that was an ugly time, and that was very scary.
And the public – Some people learned from 1987 and they stood throughout that and said, “I’m confident about the next 5, 10, 15 years in this country,” and they hung in there. So I would say if you want to buy a small growth fund or you want to buy a balanced fund that’s part bonds and part stocks and you put so much money in, then you put more in every year. You’ll be very pleased in 10, 20, or 30 years. Stocks will beat the hell out of money markets. They’ll beat the hell out of bonds.
Think of it this way: Great corporations like McDonald’s – these great companies – Marriott, you name it. They never get together and say, “We’re doing well. Why don’t we raise the coupon on our bonds? Those bond holders have been really loyal. (Laughter) We’ve been given 8%. Why don’t we raise it to 9%?” (Laughter)
But companies like Automatic Data Processing – payrolls is amazing, prosaic company, 32 years of higher earnings, 32 years of double-digit earnings growth. We’ve had recessions. We’ve had wars. We’ve had changes in Congress, changes in the Supreme Court, but it’s had 32 years of up earnings.
That’s what you’re relying on; Johnson & Johnson has 30 years of up earnings, General Parts 42 years of up earnings, Emerson Electric 38 years of up earnings. You don’t see companies like this in other parts of the world. But I think that’s what you buy when you buy a fund. You buy a bunch of good companies.
This is so true 😂
I’ve had audiences like this – large audiences – and I said, “How many people in the room are short-term investors?” I’ve never had anybody raise their hand. I mean everybody in the world is a long-term investor until the market goes down. ~Peter Lynch