In his 1994 article titled – What do the great successes of the past 20 years tell us? It’s the company, stupid, Peter Lynch provides some great illustrations of what happens when investors ignore entire categories of companies. Here’s an excerpt from the article:
Lynch: Investors who put on blinders and ignore entire categories of companies, such as the stodgy utilities, or the lousy airlines, or the silly candy makers that only sell to a bunch of kids, are missing out on some great deals. Stodgy utilities? Not General Public Utilities, the owner of Three Mile Island, which almost made the hit parade with a 1,000 percent gain on its stock in the latest decade.
The lousy airlines? A lot of people will tell you never to put a penny into that mess. Yet here we find three airlines — Comair, Atlantic Southeast, and Southwest, with the latter two high on the winner’s list. Southwest’s stockholders made 12,000 percent from 1973 to 1983.
If it’s a choice between investing in a good company in a great industry, or a great company in a lousy industry, I’ll take the great company in the lousy industry any day.
Good management, a strong balance sheet, and a sensible plan of action will overcome many obstacles, but when you’ve got weak management, a weak balance sheet, and a misguided plan of action, the greatest industry in the world won’t bail you out. Here’s my investment motto of the month:
It’s the company, stupid.
You can read all of the articles Peter Lynch wrote for Worth Magazine, with special thanks to their original source Dividend Growth Investor, here:
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