Collection: Peter Lynch - #58 '10 Most Dangerous Things People Say About Stocks PART 3-5/10'



[Transcript]

PETER LYNCH 00:00

Eventually they always come back. Here's another one that sucks. (Laughter)


That's a technical stock market term, we just use only in the stock market. RCA just about get back to its 1929 price was backed out by GE. Manville never came back, International Harvester even with its name changed and adjusted for splits hasn't got all the way back, look at Western Union...


Double-knit – remember those wonderful things – floppy disks, they don't have to come back. But they say eventually they always come back, not true.


Here's a great one, it's three dollars, how much can I lose? (Laughter) This is a great one. You see, I (inaudible) – I don't have a computer and I can't do a high level math but just do this one.


Let's say, you buy – your neighbor buys ten thousand dollars of stock at 50 and the stock's now 3 and you put twenty five thousand dollars in at 3 and it goes to 0, who loses the most? (Laughter)


A lot of people cannot answer this question, you know. (Laughter) I mean, if you put a billion in at 3, you can lose a billion, you know. I mean, they blow taps in lots of companies every year, you know, they can go to 0.


Here's a good one that helped me a lot. It's always darkest before the dawn, this business is terrible, it's awful, you ought to buy the group. This is not a good way of making money.


Here's one you probably talking about before lunch, freight car deliveries. In 1979, there's 96,000 freight cars deliver in United States. 2 years later, it fell to 45,000, the lowest in 23 years. It goes from 96,000 to 45,000, people say business is awful, it's horrible, pathetic.


Then it falls to 25,000, they say just load up. There's about 15 opportunities to lose money, it's about 15 suppliers of freight cars, 15 manufacturers. Business was awful but last year we shipped 7,000 freight cars in United States, the business just continued to be miserable.


And I'll give you one there's even greater opportunity to lose money on, energy services industry. This we all had a great opportunity to get our heads handed to us. In 1982, there's 11,000 of those oil rigs drilling left, drilling those holes all over Oklahoma and Texas and Colorado.


We used have the recount every week. And the recount fell from 11,000 in 82 into 6,000 in 83, then fell a little bit lower in 84. There's hundreds and hundreds of companies here, companies that made the muds and did the down-hole stuff, the fracturing companies, the well companies, all the measurement companies, the chambers, the bit companies, lots of opportunities to lose money here. There's equal opportunity here for serious losses.


And the people said, listen, business is terrible, let's buy these groups. Well, the recount was only a 1,000, 3 years ago. So it went from 11,000 to 6,000 to 5,000, then 8 years later, was under a 1,000. The industry really started to turn about 2 years ago. So just saying the business can't get worse.


I was lucky enough in addition of metals industry when I started Fidelity, I had the textile industry. Which is a great group to follow because you follow companies like JP Stevens was found in the 18th century and West Point Pepperell was found in the 18th century, Burlington is one of the new companies was founded in 1904. These people have been through recessions, depressions, World Wars, they seen it all.


There's a great expression in textile industry, "it's always darkest before pitch black." (Laughter) Now that's a good way to remember, because your business is terrible, it can get considerably terrible, you're terrible to the power of six.


(Source: https://www.c-span.org/video/?90525-1/investing-stock-market)

 

[YAPSS Takeaway]

Dangerous things people say about stocks;

  • Eventually they always come back.

  • No, they don't. Once it's gone is gone like floppy disk, dvd, etc.

  • It's $3 already how much can you lose?

  • If you invest $100,000 at $3 if it goes to $0, your portfolio will go $0.

  • It's always darkest before pitch black.

  • When your business is terrible, it can get even worse as time goes on.