Peter Lynch: 13 Filters For Finding The Perfect Stock

Johnny HopkinsInvesting Strategy, Peter Lynch1 Comment

One of our favorite investing books is – One Up On Wall Street by Peter Lynch – It’s an investment classic! In Chapter Eight, Lynch provides thirteen filters for finding the perfect stock saying:

Getting the story on a company is a lot easier if you understand the basic business.

That’s why I’d rather invest in panty hose than in communications satellites, or in motel chains than in fiber optics. The simpler it is, the better I like it. When somebody says, “Any idiot could run this joint,” that’s a plus as far as I’m concerned, because sooner or later any idiot probably is going to be running it.

If it’s a choice between owning stock in a fine company with excellent management in a highly competitive and complex industry, or a humdrum company with mediocre management in a simpleminded industry with no competition, I’d take the latter. For one thing, it’s easier to follow. During a lifetime of eating donuts or buying tires, I’ve developed a feel for the product line that I’ll never have with laser beams or microprocessors.

“Any idiot can run this business” is one characteristic of the perfect company, the kind of stock I dream about. You never find the perfect company, but if you can imagine it, then you’ll know how to recognize favorable attributes, the most important thirteen of which are as follows:

1. It sounds dull – or, even better, ridiculous
2. It does something dull
3. It does something disagreeable
4. It’s a spin-off
5. The institutions don’t own it, and the analysts don’t follow it
6. The rumours abound: It’s involved with toxic waste and/or the mafia
7. There’s something depressing about it
8. It’s a no-growth industry
9. It’s got a niche
10. People have to keep buying it
11. It’s a user of technology
12. The insiders are buying
13. The company is buying back shares

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