Peter Lynch and Sir John Templeton

In this video, Lynch covers some of his rules for successful stock market investing as described in his books.

1. Stock price usually follows a companies profits
2. Buy what you know (at the right price)
3. Timing is tough

Peter Lynch On The Stock Market

I do not know the exact date of this video, but that’s irrelevant in my opinion. It’s good to have knowledge on the history of the stock market and how to manage a portfolio during market downturns, such as knowing which kind of stocks to own, what to do with market
surprises,etc.. This video covers some of the basics.

Peter Lynch On Bottom Fishing

A couple of words on bottom fishing:  Good luck!!!!

Anyone know the name of the other individual in the third video? If you do, congrats you are a stock market junkie

First on the plate is Ken Heebner’s CNN Money interview. For those not familiar with Ken Heebner, he has one of the hottest (if not the hottest) hand in investing right now. His mutual fund (CGMFX) was up an outstanding 80% last year! The first thing that came to mind when I read this was Peter Lynch. Why? In his books, Peter Lynch describes how much time and effort he spent gathering information on companies, often spending holidays in his office listening to conference calls and interviewing CEO’s. On the other hand, Ken Heebner spends his time analyzing macro trends. Indeed, a very tough thing to do as he is trying to stay ahead of thousands/millions trying to do the same thing. The other great value investing story came out canadianbusiness.com.

Basically, the article highlights four candidates that can may be the next Warren Buffett. Out of the four, I follow Ian Cumming of Leucadia National (LUK). For those interested in one of his picks, the insiders at Jefferies Group (JEF) are going crazy buying their own shares. Ian Cumming is loading up at current prices. I have not looked into the story at Jefferies but considering the buying going on, I might build a small position now, and do some reading. One thing I did learn from Peter Lynch, if insiders are buying, it’s usually for a good reason (they think their stock is cheap).

The next great read I found is Robert Rodriguez’s shareholder letter. Not much attention was given to it at valueinvestingnews.com, but it’s better than 90% of the stories submitted this week. Rodriguez earned my respect when he steered clear of the credit crisis and putting a buying halt on his funds last year. Currently, he is sitting at 38% cash and still outperforming the market.

One common characteristic of successful value investors is they take advantage of the lower stock price and increase their position(s). On the other hand, many investors will do the opposite and sell. Truth is, the stock market is a volatile animal. In a given month, a stock’s price can move up dramatically. But, it can also go down dramatically. A perfect example of how fast a stock can move is Office Depot (ODP). When I wrote about Office Depot, every consumer company was taking a beating as economists and analysts expected a slowdown in the economy. As a result, the whole office supplies industry, which primarily consists of Staples, Office Max, and Office Depot were depressed and hit the 52 week low list. Office Depot also landed on the Magic Formula List for stocks with a market cap over 2 billion. I wrote about Office Depot when the stock was trading at $13 and change. Soon after, the company reported earnings that fell short of analyst expectations and the stock tumbled about 20% to $10.XX. Talk about timing.

At this point in time, I could have written some lame excuse about how Office Depot has become a sell and avoid the stock at all costs. But, those who know me know that will never happen. The beauty about contrarian investing is even if a company reports horrible earnings it is a win win situation. Assuming the company reports a worst than expected quarter much of that bad news will be priced into the stock. On the other hand, if a company has a positive earnings surprise; you will see a nice pop. This was the case with Office Depot. In a matter of 2-3 weeks the stock has moved up more than 25% despite reporting declining revenue. Not bad eh? Anyone can gloat and feel like a genius when a stock is up, but can one watch their stocks go down 20% and not panic. In my opinion that is what separates the elite from the average.

Finally, a couple of years ago I found an interesting quote on volatility by Peter Lynch. I memorized it for situations like this. Who knows? It might help someone out one day.

When stocks are attractive, you buy them. Sure, they can go lower. I’ve bought stocks at $12 that went to $2, but then they later went to $30. You just don’t know when you can find the bottom. – Peter Lynch

Readers of this blog will notice that a couple of picks of mine have been in the dog house, while others have performed well in a choppy market. Unfortunately, for the casual web surfer who stumbles onto here, they will focus more on the stocks that have been down.More…