Novice Investing - Learning From Peter Lynch Part V

Date: Monday 01st 2008f December 2008 04:40:26 PM

Learning From Peter Lynch Part V - 10/18/2006

By: Novice Investing Staff

It is nice to be able to identify undervalued stocks for your investment. However, knowing what stock to avoid is critical to boost your overall investment return. (If only you were not tempted to buy that microsurgical company, you would be doing just fine). In Peter Lynch's book, One Up on Wall Street, it tells us what stocks you must avoid.

Beware the next Something. One should be cautious if analysts or the mass are preaching that stock XYZ is the next .... (Microsoft, or IBM). Sure, everyone would love to own the next Microsoft. But, when a stock is dubbed the next Microsoft, chance are, investors are so enamored by the company and for regular folks like us, it would be too late to join in. Peter emphasized that when a stock XYZ is labeled the next Microsoft, it marks the end of prosperity for both XYZ and Microsoft (strangely).

Avoid Deworseifications. This simply means to avoid companies that spend its profit buying foolish acquisitions. A lot of times, deworseifier will buy a company that is 1) expensive, 2) beyond the realm of its expertise. As a result, shareholders' money is wasted. While the nature of deworseification is unclear, Peter believes that in most instance, the money would be better spent in buying back shares or distributing it as a dividend.

Beware the Whisper Stock. This is the stock tips that you would often get from someone who would have to lower their voices as if to confide something personal. In many cases, whisper stock is a biotechnology stocks that are about to announce major product breakthrough. Avoid this kind of stock as generally, the story will only get sour.

Beware the Stock with Exciting Name. Hmm, this is the exact opposite of what Peter Lynch consider a good stock to buy. Companies with exciting name includes: Xerox, Google etc.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Xerox Inc. (XRX) or any other securities.

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