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Many people contemplating being a share investor hesitate because they think they don’t have an edge, an extra insight into companies and sectors. This is usually untrue.
If you have worked in the motor industry, for example, say in sales, or manufacturing, you might be very familiar with the companies. You might know which have the best managers and which have a great new product line-up. This is the sort of knowledge that can give you an edge.
You only need a few good share buys a decade to perform well over time. So you can bide your time, only buying a company’s shares when all the qualitative and quantitative factors are right AND the share is selling at such a low price so as to give an adequate margin of safety.
There is no rush to build a portfolio; a few stocks that you know really well is far better than 50 that you know little about.
Peter Lynch said “When your lifetime is over, you don’t need a lot of five-baggers to make a lot of money starting with $10,000 or $5,000. So, in your own industry you’re going to see a lot of stocks. There are good stocks out there looking for you and people aren’t listening and they’re just not watching. They have incredible edges.” (Peter Lynch 8 October 1994 Lecture to the National Press Club)
Peter Lynch, one of the greatest ever investors with an extensive knowledge of some industries, had great respect for ordinary folk who possess special knowledge about certain industries, they know a lot and stuck within their circle of competence:
“People have big edges over me. They work in the aluminum industry. They see the aluminum industry inventory coming down six straight months. They see demand improving. In America today, you know it’s hard to get an EPA permit for a bowling alley, never mind an aluminum smelter. So, you know when aluminum gets tight; you just can’t build seven aluminum smelters. So, when you see this coming, you can say, “Wait a second. I can make some money.” When an industry goes from terrible to mediocre, the stock goes north. When it goes from mediocre to good, the stock goes north. When it goes from good to terrific, the stock goes north. There’s lots of ways to make money in your own industry. You can be a supplier in the industry. You can be a customer. This thing happens in the paper industry. It happens in the steel industry. It doesn’t happen every week, but if you’re in some field, you’ll see it turn. You’ll see something in the publishing industry. These things come along, and it’s just mind boggling that people throw it away.” (Peter Lynch 8 October 1994 Lecture to the National Press Club)
Professor Glen Arnold now offers a Managed Portfolio Service at Henry Spain Investment Services under which clients’ portfolios contain the same shares as his (write to Jackie.Tran@henryspain.co.uk)
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