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simple stock market investment playbook from a genius

One up on wall Street by Peter Lynch is a seminal book written by the celebrity mutual fund manager of Fidelity for over 20 years. He summarised his finding for general public in this book. What he presents look very simple .Thats the beauty of simplicity.

true learning is when you can teach the concept to a kid of 5 years.

Richard feynman


you have to Look around to find great stocks

Stocks types

Slow growers – dividend plays,earning not growing fast.They are kind of fixed return plays as if you are investing in banks fixed deposits.

Stalwarts -faster than slow growers and frontline companies of the stock market.big companies.

Fast growers- small aggressive new enterprises that grow at 20-25%

Cyclicals – These companies are in cyclical industries like steel, sugar, commodities,

Asset plays-These companies are pure asset plays

Turnarounds -as the name suggests these companies have gone through bad times and slowly they are turning to life.

Characteristics of a perfect stock

The company will sound dull

It does something dull

does something disagreeable ,disgusting

It is a spinoff

The instutions don’t own it and the analysts don’t follow it

The rumours abound,it involved with toxic waste /mafia

There is something depressing about it

It’s in a no growth industry

company has got a niche

People have to keep buying it

It’s a user of technology

The insiders are buying

The company is buying back shares

Stocks to avoid

Hottest stock in hottest industry

The next something

Avoid diversification play

Whisper stock

Beware of stocks dependent on few customers for sells

Stocks with exciting name

What moves the stock

Earnings, earnings, earnings – stock price ultimately catches up with the earnings of the business.

you look for for lower PE ratio ,comparative to the historical .don’t look in isolation ,have a look at PE of market too. Five ways a company can increase earnings- reduce costs, raise prices,expand into new markets, sell more of its products in the old market,close losing operation or turnaround it.

If you think the stock will achieve the growth you are assuming. You make a two minute presentation on why/how  the stock will achieve the growth you have assumed.

Research the facts

What percentage of sales  a particular  good selling product of a company commands

The p/e ratio of any company that’s fairly priced will equal its growth rate of earnings.if pe is less than growth rate ,it’s attractive.viceversa avoid the stock as it’s likely to head down.

Another way to decide if stock is right choice or not is

Growth rate of earning+dividend/pe

= ?

Less than 1, not good ,1.5 is ok ,but we should be looking for 2 and above.

Cash position- cash position is important in deciding,if the company is generating free cash flows

Debt position,- it should be  favorable.

Dividends – growing dividend pay outs

Book value -if buying for book value ,it’s mandatory to have clear understanding of what constitutes those values built up in book value.

Hidden assets- book value can understate the assets too.

Good free cash flow- where you to spend less cash to generate cash.

Inventory build up –  inventory build up is not a good sign

On the brighter side, if the company is depressed and inventories are coming down,it’s first sign of turnaround

Growth  companies – having pe in higher numbers are still better than low growers with low pe.

Profitability- high profit margin in long term stock and relatively low profit margin in turnaround stories.

End of the year is generally a good time to buy

When to sell

When to sell is also important in return on investing.we give you some suggestions to plan selling. you plan sell as per the type of companies you are dealing with.

Slow growers -30′-50 percent appreciation

Lost market share for 2 consecutive years

Diversification in unrelated business

Balance sheet debt heavy


Pe strays too far beyond the normal range,can be bought back when the pe falls back in the range

New products have mixed results

No buying by insiders in last year

Major division is having vulnerability to an economic slump

Growth rate slowing down


Inventories are building up

Falling commodity prices

Final demand for the product is slowing down,

New capacities are being added 

Fast grower

All the characteristivs of stocks to avoid.

Sales are down in last quarter

Key executives are leaving

P/e is excessive compared to growth.


Once  turnaround has been successful

Debt increased

Inventory rising at twice the rate of sales growth

Pe looks inflated

Leading customer is in slowdown.

Asset play


Less realisation in sales than expected

Rising of institutional share holding to double.

happy investing.

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