PETER LYNCH 00:00
Actual bad economic news, rising interest rates, wars, elections. Any of these can push the market down.
If you are one of those people that pour over graphs, economic statistics or astrology charts, trying to figure out what the stock market is going to do next, you are wasting your time. No one can predict the market.
You have to understand the market goes down. There have been 95 years this century, we have had 50 declines of over 10%. Of those 50 declines, 15 have been 25% or more. So about once every two years the market falls 10%, about once every 6 years it falls 25%. These are big drops. You have to understand that. That is the nature of the market.
In 1990, Saddam Hussein went into Kuwait. The banking system was in trouble. We had a recession. You had all this background noise. Lots of good companies that had nothing to do with wars, nothing to do with banking, they all went down in 1990. The market fell from 3000 and fell over 20%. This gave you a great opportunity to buy terrific companies at very good prices.
Behind every stock, is a company. If the company does terrific over a long period of time, the stock will do terrific. If the company does lousy, the stock’s going to do lousy. That’s all you are betting on.
There is a company that has had 35 years of double-digit earnings growth for every single quarter. We have had changes in supreme court, we had the stock market go up and down, we had changes in presidents, we have had recessions, we have had wars. All those things had no effect on Automatic Data Processing. So, every time the market went down, it gives you a chance to buy it.
You are saying I believe strongly that this company is going to do well. If you start to see symptoms that is not going to happen, the stock is going to very rapidly respond to that. If the company runs out of steam, the stock is going to run out of the steam.
Look at Fannie Mae. From July through October 1990, the Standard & Poor’s 500 fell 21%. Fannie Mae fell from about $42 a share to about $26, even though earnings were still increasing. This was a terrific time to buy Fannie Mae. The company was doing well. Management was still great. The story was solid, and they had a very good business. But you got to buy the stock at a 38% discount.