Six investment groups of Peter Lynch in the framework...

Six investment groups of Peter Lynch within the framework of industry analysis

P. Lynch is the legendary manager of the Fidelity's Magellan Fund, he formulates his investment strategy in a peculiar way, but it can be seen that the allocation of companies in terms of investment attractiveness within the six groups fits well into the industry analysis approach described above. The classification of companies proposed by him underlines the importance of the sectoral characteristics.

Many prefer to invest in fast-growing industries, of which there is a lot of noise. But not me. I prefer slow growing industries, especially boring and sad - for example, funeral services firms or waste-processing companies. There are no problems with competitors. You do not need to defend yourself against invaders, and all your strengths can be directed to growth. " P. Lynch as follows groups companies and directions of investment.

1. Sloths (slowly growing) are big and long-running companies on the market. These industries are growing slightly faster than the economy as a whole. The companies of these industries have stable cash flows and pay generous dividends. "They have more money than they can invest." This group is well described by companies beginning the maturity stage in a four-stage industry life cycle model.

2. Stars ( starwarts ). These are large and well-known companies in steadily growing industries. Vivid examples are the "Coca-Cola", "Nestle", "Exxon Mobil". As a rule, we are talking about noncyclic sectors of the economy. Companies of this group can also be assigned to the final moment of stage 2 in a four-stage model.

3. Companies growth. These are small and aggressive companies with a revenue growth rate of at least 20% per year. The reason for the rapid growth of such companies can be both the emergence of new industries, and the increase in market share in mature industries. This group is well correlated with startups (companies in phase 1 or companies in the initial stages of stage 2).

4. Companies of cyclical industries. The change in the cash flows of these companies corresponds to the economic (business) cycle. A typical example is construction companies. Cyclic companies can be located at the startup (electronic books), and in stages 2 (for example, mobile phones) and 3 (production of TV sets).

5. Werewolves or flip-flops ( turnarounds ). These companies are in a crisis situation, bankrupt or are on the verge of bankruptcy. Getting into this situation often happens due to the decline in the industry, but it can also happen due to the neglect of restrictions on financial dependence. The situation of cash gaps and the loss of financial stability can get companies of any stage of the life cycle. This group of companies does not explicitly correlate with any of the four stages of the industry life cycle model. The cash flows of these companies are extremely unpredictable, some actions of the government or owners can significantly change the company's position in the market. However, the probability of complete destruction of value remains. A typical example is IBM .

6. Companies with hidden opportunities. Some of the valuable assets of these companies have not yet been reflected in the standard financial statements (valuable research and development and innovations that can bring a fantastic income).

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