彼得·林奇1994年10月8日对国家新闻俱乐部讲座实录（含时间码）

Based on YouTube video

Intro by Monroe Karmin

[8:30] A native of Boston, Mr. Lynch is a 1965 graduate of Boston College and received his MBA from the University of Pennsylvania’s Wharton School of Business Education. He served as a lieutenant in the Army before coming to Fidelity in 1969. He currently serves as vice-chairman of Fidelity, sits on the boards of Morris-Knudsen and W. R. Grace and is heavily involved in charity work. Would you please welcome Mr. Peter Lynch.

[9:10] Thank you very much it’s a pleasure to be here, I love this town {Washington, DC} and it’s a thrill to be here with Jim Johnson who did so much for Fannie Mae and that was the greatest single stock of my life. It’s still my largest position and anybody who wants to talk after about how to make money; I’ll tell them how to buy more Fanne Mae and now I’ve added Freddie Mac to the list too. And Congressman Ed Markey, who went to Boston College and Boston College Law School and has done a great job in Congress for everybody in this country, but especially the people in his districts in Massachusetts. But the great honor is my wife Caroline right here, my sweetheart, and my great stock picker who found Leggs and a bunch of other good stocks. What I am going to try to do today (I don’t know what I’m supposed to do with this gavel, I never had one of these things before)

[10:] I am going to try to say some words on the things I’ve used over the years when I was an amateur, when I ran Magellan and I still use today. I think they make sense. I think they make a lot of sense for investors and I frankly think that it’s a tragedy in America that the small investor has been convinced by the media: the print media, the radio, the television media that they don’t have a chance. The big institutions with all their computers and all their degrees and all their money have all the edges and it just isn’t true at all.

[10:37] And when they are convinced, when this happens, when this occurs, people act accordingly. When they believe it, they buy stocks for a week, they buy options, they buy the Chile fund this week and next week it’s the Argentina fund. And they get results proportional to that kind of investing. And that’s very bothersome, I think the public can do extremely well in the stock market on their own. I think the fact that institutions dominate the market today is a positive for small investors because institutions push stocks to unusual lows, they push them to unusual highs. For someone that can sit back and have their own opinion and know something about an industry this is a positive; it’s not a negative. So that’s what I want to talk about

[11:20] And the single most important thing to me in the stock market, for anyone, is to know what you own. I’m amazed at how many people own stocks, they would not be able to tell you why they own it. They couldn’t say in a minute or less why they own it. Actually, if you really press them down, they’d say, “The reason I own this is the sucker is going up.” And that’s the only reason. That’s the only reason they own it. And if you can’t explain – I’m serious, if you can’t explain to a ten year-old in two minutes or less why you own a stock, you shouldn’t own it. And that’s true I think of about 80% of people that own stocks.

[11:50] And this is the kind of stock people like to own. This is the kind of company people adore owning: it’s a relatively simple company, they make a very narrow, easy to understand product. They make a one-megabit SRAM CMOS bipolar RISC floating point data I/O array processor with an optimizing compiler, a 16 dual-port memory, a double-diffused metal oxide semiconductor monolithic logic chip with a plasma matrix vacuum fluorescent display. It has a 16-bit dual memory. That has a UNIX operating system, four Whetstone megaflop polysilicon emitter, a high bandwidth (that’s very important) 6 gigahertz double metalization communication protocol, an asynchronous backward compatibility, peripheral bus architecture, four-way interleaved memory, a token ring interchange backplane, and it does it in 15 nanoseconds of capability. Now, if you want a piece of crap like that, you will never make money. Never. Somebody will come along with more Whetstones or less Whetstones or bigger megaflop or a smaller megaflop. You won’t have the foggiest idea what’s happened. And people buy this junk all the time.

[13:00] I made money in Dunkin’ Donuts. I can understand it. When there was recessions I didn’t have to worry about what was happening. I could go there, and people were still there, I didn’t have to worry about low-priced Korean imports. I mean, I just didn’t have – you know, I could understand it. And you laugh, I made 10 or 15 times my money in Dunkin’ Donuts. Those are the kind of stocks I could understand. If you don’t understand it, it doesn’t work. This is the single biggest principle. And it bothers me that people are very careful with their money.

[13:31] The public, when they buy a refrigerator they go to Consumer Reports. They buy a microwave oven, they do that. They ask people what’s the best kind of radar range or what kind of car to buy. They do research. On apartments. When they go on a trip to Wyoming, they get a Mobil travel guide or California. When they go to Europe, they get the Michelin travel guide.

[13:50] People hear a tip on a bus on some stock, and they’ll put half their life savings in it before sunset. And they wonder why they lose money in the stock market. And when they lose money, they blame it on the institutions and program trading. That is garbage. They didn’t do any research. They bought a piece of junk. They didn’t look at the balance sheet and that’s what you get for it. And that’s what we’re being driven to and it’s self-fulfilling. The public does terrible investing and they say they don’t have a chance. It’s because that’s the way they’re acting. I’m trying to convince people there is a method. There are reasons for stocks that go up.

[14:25] Coca-Cola. This is very magic. It’s a very magic number, easy to remember. Coca-Cola is earning 30 times per share what they did 32 years ago. The stock has gone up thirtyfold. Bethlehem Steel is earning less than they did 30 years ago; the stock is half its price of 30 years ago. Stocks are not lottery tickets. There’s a company behind every stock. If a company does well, the stock does well. It’s not that complicated.

[14:53] People get too carried away. And first of all, they try to predict the stock market. That is a total waste of time. No one can predict the stock market. They try to predict interest rates. (I mean this is…) If anybody can predict interest rates right three times in a row, they’d be a billionaire. Considering there’s not that many billionaires on the planet, it’s very … you know I had logic, I had a syllogism, I studied these when I was at Boston College. There can’t be that many people who can predict interest rates because there’d be lots of billionaires

[15:21] And no one can predict the economy. I know a lot of people in this room were around in 1981 and 1982 when we had a 20% prime rate with double-digit inflation, double-digit unemployment. I don’t remember anybody telling me in 1981 about it. I didn’t read, I study all this stuff, I don’t remember anybody telling me we’d have the worst recession since the Depression. So, what I’m trying to tell you, it would be useful to know what the stock market will do. It would be terrific to know the Dow Jones average a year from now would be X, that we’re going have a full-scale recession, or to know interest rates will be 12%. That’s useful stuff. You never know it, though. You just don’t get to learn it. So, I’ve always said if you spend 14 minutes a year on economics, you’ve wasted 12 minutes and I really believe that.

[16:05] Now, I have to be fair. I’m talking about economics in the broad scale, predicting the downturn for next year, or the upturn, or M1 and M2, 3B, all of these Ms. {economic terms} Economics to me are when you talk about scrap prices. When I own auto stocks, I want to know what’s happening to used car prices. When used car prices rise, it’s a good indicator. When I own hotel stocks, I want to know hotel occupancies. When I own chemical stocks, I want to know what’s happening to the price of ethylene. These are facts. If aluminum inventories go down five straight months, that’s relevant. I can deal with that. Home affordability. I want to know about when I own Fannie Mae, or I own a housing stock. These are the facts. There are economic facts and there are economic predictions, and economic predictions are a total waste.

[16:52] Interest rates – Alan Greenspan is a very honest guy. He would tell you he can’t predict interest rates. He can tell you what short rates are going to do in the next six months. Try and stick him on what the long-term rate will be three years from now. He’ll say, “I don’t have any idea.” So how are you, the investor, supposed to predict interest rates if the head of the Federal Reserve can’t do it?

[17:10] So I think that’s … that you should study history and history is the important thing you learn from. What you learn from history is that the market goes down, it goes down a lot. The math is simple. There’s been 93 years this century. (This is easy to do) The market has had 50 declines of 10% or more. So 50 declines in 93 years, about once every two years the market falls 10%. We call that a correction, that means, that’s a euphemism for losing a lot of money rapidly. We call it a correction So 50 declines in 93 years, about once every two years the market falls 10%. Of those 50 declines, 15 have been 25% or more. That’s known as a “bear market.” We’ve had 15 declines {of at least 25%} in 93 years, so every six years, the market has a 25% decline. That’s all you need to know. You need to know the market is going to go down sometimes. If you’re not ready for that, you shouldn’t own stocks.

[18:09] And it’s good when it happens {a market decline}. If you like a stock at $14 and it goes to $6, that’s great. You understand the company. You look at the balance sheet. They’re doing fine. You are hoping to get to $22 with it; $14 to $22 is terrific, $6 to $22 is exceptional, so you take advantage of these declines. They’re {declines} are going to happen, and no one knows when they’re going to happen. People will tell you after the fact that they predicted it, but they predicted it 53 times. So, you can take advantage of the volatility of the market if you understand what you own. So, I think that’s a key element.

[18:40] Another key element is that you have plenty of time. People are in an unbelievable rush to buy a stock. I’ll give you an example of a well-known company. Walmart went public in October of 1970; 1970 it went public. It already had a great record and had 15 years’ of performance; great balance sheet. You could have waited ten years, saying you’re a conservative investor and you’re not sure this Walmart can make it. You want to check. You see them operate in small towns. You’re afraid, they only operate in seven or eight states. You want to wait until they go to more states. You keep waiting. You could have bought Walmart 10 years after it went public and made 35 times your money. If you bought it when they went public, you would have made 500 times your money, but you could have waited 10 years after Walmart went public and made over 30 times your money.

[19:30] You could have waited three years after Microsoft went public and made 10 times your money.. If you knew something about software (I know nothing about software) you would have said, “These guys have it. I don’t care who’s going to win, Compaq, IBM. I don’t know who’s going to win, Japanese computers. I know Microsoft MS-DOS is the right thing.” You could’ve bought Microsoft.

[19:50] Again, I’m repeating myself, stocks are not a lottery ticket. There’s a company behind every stock, and you can just watch it. You have plenty of time. People are in an amazing rush to purchase a security. They’re out of breath when they call up. You don’t need to do this.

[20:07] You need an edge to make money, too. People have incredible edges and they throw them away. I’ll give you a quick example of Smith Kline. This is a stock that had Tagamet. Now, you didn’t have to buy Smith Kline when Tagamet was doing clinical trials. You didn’t have to buy Smith Kline when Tagamet was talked about in the New England Journal of Medicine or the British version, Lancet. You could have bought Smith Kline when Tagamet first came out or a year after it came out. Let’s say your spouse, your mother, your father; you’re a nurse, a druggist, or a physician writing all these prescriptions. Tagamet was doing an amazing job of curing ulcers and it was a wonderful pill for the company because if you had stopped taking it, the ulcer came back. See,it would’ve been a crummy product if you took it for a buck and it went away but it was a great product for the company. But you could have bought it two years after the product was on the market and made 5 or 6 times your money. I mean all the druggists, all the nurses, all the people, millions of people saw this product and they’re out buying oil companies or drilling companies. It happens. Then three year later or four years later Glaxo, an even bigger company, it’s a huge company, a British company, brought out Zantac which was, at that time, a better, an improved product. You could have seen that take market share and do well. You could have bought Glaxo and tripled your money. So, you only need a few stocks in your lifetime. They’re in your industry.

[21:30] I think people, if you’d worked in the auto industry; let’s say you’re an auto dealer the last 10 years, you would have seen Chrysler come up with the minivan. If you were a Buick dealer, a Toyota dealer, a Honda dealer, you would have seen the Chrysler dealership packed with people. You could have made 10 times your money on Chrysler a year after the minivan came out. Ford introduces the Taurus/Sable, the most exceptional line of cars in the last 20 years. Ford went up sevenfold on the Taurus/Sable. So, if you’re a car dealer, you only need to buy a few stocks every decade. 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, and that’s what bothers me. There are good stocks out there looking for you and people aren’t listening and they’re just not watching. They have incredible edges.

[22:20] 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.

[23:17] (One of the things…) A couple of rules I want to throw out a couple of rules that I find useful. A lot of times, people buy on the basis the stock has gone down this much; how much further can it go down. I remember when Polaroid went from $130 to $100 and people said, “Here’s this great company, great record. If it ever gets below $100, you know just buy every share.” You know, it did get below $100 and a lot of people bought on that basis saying, “Look, it’s gone from $135 to $100. It’s now at $95. What a buy!” Within a year, it was $18. This is a company with no debt. It was just so overpriced, it went down.

[23:55] I did the same thing in my first or second year in Fidelity. Kaiser Industries had gone from $26 a share to $16. I said, “How much lower can it go at $16?” So, I think we bought one of the biggest blocks ever probably on the American stock exchange of Kaiser Industries at $14. I said, “It’s gone from $26 to $16. How much lower can it go?” Well, at $10, I called my mother and said, “Mom, you got to look at this Kaiser Industries. How much lower can it go? It’s gone from $26 to $10.” It went to $6. It went to $5. It went to $4, and it went to $3. I am fortunate this happened rapidly, or I would probably still be caddying or working at the Stop and Shop but it happened fast. It was compressed.

And at $3, I figured out there’s something wrong here because Kaiser Industries owns 40% of Kaiser Steel. They own 40% of Kaiser Aluminum. They own 32% of Kaiser Cement. They own Kaiser Broadcasting, Kaiser Sand and Gravel, and Kaiser Engineers. They own Jeep. They own business after business, and they had no debt.

[24:50] And I learned this early. This might be a breakthrough for some of you people. It’s very hard to go bankrupt if you don’t have any debt. It’s tricky, some people can approach that; it’s a real achievement. But they had no debt and the whole company, at $3, was selling at {a total market capitalization} about $75 million. At that point, it was equal to buying one Boeing 747. I said there’s something wrong with this company selling for $75 million. I was a little premature at $16, but I said everything’s fine, and eventually this will work out.

And what they did is they gave away all their shares to their shareholders. They passed out shares of Kaiser Cement. They passed out shares of Kaiser Aluminum. They passed out the public shares in Kaiser Steel. They sold all the other businesses, and you got about $50 a share.

[25:30] But if you didn’t understand the company; if you were just buying on the fact the stock had gone from $26 to $16 and then again to $10, what would you do when it went to $9? What would you do when it went to $8? What would you do when it went to $7? This is the problem people have: is they sell stocks because they didn’t know why they bought it, then it goes down and they don’t know what to do now. Do you flip a coin? Do you walk around the block? What do you do? Psychiatrists haven’t worked so far. The psychological psychiatry fund I’ve never seen file with the SEC to make it through as a mutual fund. They haven’t seemed to help. I’ve tried prayer; that hasn’t worked. So, if you don’t understand the company, you have this problem when they go down.

[26:13] Eventually, they always come back. This one doesn’t work either. People think RCA just about got back to its 1929 high when General Electric took it over. Double knits never came back; remember those beauties? Floppy disks, Western Union, the list goes on and on. People saying: “Iit’ll come back.”

Well, it doesn’t have to come back.

[26:40] Here’s another one you hear all the time: “It’s $3, how much can I lose?” I’ve had people call me up all the time saying, “I’m thinking of buying this stock at $3. How much can I lose?” Well, again you may need a piece of paper for this, but if you put $20,000 into a stock at $50 or your neighbor put $20,000 into a stock at $50 and you put $20,000 in at $3 and it goes to zero, you lose exactly the same amount of money, everything. If people say, “It’s $3. How much can I lose?” If you put $1 million on it, you can lose $1 million.

[27:15] This may be a reason to research a stock. The fact a stock is $3 down from $100 doesn’t mean you should buy it. And in fact, short sellers, people who really make money in stocks, they don’t short Walmart. They don’t short Home Depot. They don’t short the great companies, Johnson & Johnson. They short stocks down from $80 to $7. They’d like to short it at $16 or $22, but they figured out at $7, this company is going to zero. They just haven’t blown taps on this thing yet. It’s going to zero, and they’re selling short at $7. They’re selling short at $6, at $5, at $4, at $3, at $2, at $1.25. And you know to sell something short, you need a buyer. Somebody has to buy the damn thing! You wonder who’s buying this thing. The buyers are people saying, “It’s $3. How much lower can it go?”

{Getting close on time, so an area was skipped}

[28:11] The important thing is you can’t get too attached to a stock. You have to understand there’s a company behind it. You can’t treat this like your grandchildren. You have to deal with the stock and say, “I understand the company.” If it deteriorates, if the fundamentals slip, you have to say goodbye to it. One rule you want to remember: the stock does not know you own it. This is a breakthrough. You have to understand it and say, they’re doing well and as long as they’re doing well {I’ll keep my position}. My best stocks have been the stocks I owned in my fifth, sixth, and seventh years I own then, not my fifth, sixth, or seventh day. So, you have to understand that and stay with it.

[28:48] I’ll switch through to my long shots. Avoid long shots. I bought about 30 long shots in my life. I’ve never broken even on one. The ones that are really bad are called “whisper stocks.” If Arthur Levitt {Chairman of the SEC from 1993 to 2001} were here, he’d appreciate these stories. These are the times that somebody calls you up and says, “Hi, Peter. How’s Carolyn? How are the kids? I’d like to talk to you about International Blivit. Earnings { Lynch whispering} Earnings will be unpredictable. They’ll be small. It’s $3 a share, a $1 a share” and they keep whispering all these things. And I say: “What are you talking about? I don’t understand.” Now, either they’re so surrounded by people that are going to run out and buy this stock because it’s so exciting, or they think the SEC is listening in. They’ll get a shorter term, they’ll get six months in the camp rather than two years in the camp. But whisper stocks don’t work.

[29:45] Now, I want to conclude by saying there’s always something to worry about. If you own stocks there’s always something to worry about. You can’t get away from it. What happens in the 1950s, people were worried about the only reason we got out of the Depression was World War II. We got another recession in the early 1950s and we said we’re going to go right back into a depression. People were worried about a depression in the 1950s, and they were worried about nuclear war. Back then, the little warheads they had then, they couldn’t blow up a McLean, West Virginia, or McLean, Virginia or Charlestown.

[30:19] Now, all of these countries that end in “-stan”; there’s nine of these “-stan” countries that have come out of Russia. They all have enough warheads to blow the world up and no one worries about it. When I was a kid, people were building fallout shelters and we used to have civil defense drills. Remember this from high school? You get under your desk. I never thought, even then, that was a particularly good thing to do. They’d blow a whistle, somebody would put on a hat, and we’d all get under our desks. But in the 1950s people wouldn’t buy stocks. Except for the 1980s, the 1950s was the best decade this century of the stock market. People wouldn’t buy stocks in the 1950s because they were worried about nuclear war and they were worried about depression.

[30:54] Remember when oil went from $4 to $40 and it was going to go to $100 and we were going to have a depression? Well, about three years later, the same experts, now higher paid, oil is now at $10 and they said it was headed for $4 and we’re going to have a depression.

[31:10] And then the Japanese, remember how the Japanese were going to own the world, and we were going to have a depression? Remember that one? And then about two years later, we were all worried about Japan collapsing. This is the most absurd thing I’ve ever heard. This is a country with a 20% savings rate, incredible work force, incredible productivity, and people were saying we’re going to have a depression because Japan is going to collapse. You know, in their prayer list, they’ve lowered Mother Teresa and crippled children and they’re praying for Japan at night. You know, it’s unbelievable.

[31:33] The LDC {Lesser Developed Countries] debt. Remember the LDC debt? Remember that one? All these countries, Chase had lent their net worth to Brazil, Chile, Peru and all these other countries. They were not going to pay it back and we were going to have a depression. It always ends in we’re going to have a depression, or the Great Depression, we’re going to have the Great Depression. I never could quite understand that adjective in front of Depression. The Great Depression or the Big One is coming.

[31:54] But all these countries now, I understand what these are called – then, they were called “less developed” countries. We used to call them “underdeveloped” countries. Those are all wrong terms. Those are not politically correct. You have to call these “emerging” countries. You can’t use “less developed” or “underdeveloped”. In fact, the other day I heard the politically correct term for somebody that’s overweight: laterally challenged.

[32:17] So, there is always something to worry about and the key organ in your body in the stock market is your stomach. It’s not the brain. If you can add 8 and 8 and get reasonably close to 16, that’s the only level of math you need to know. You don’t know to need the area under the curve. Remember that quadratic equation and integral calculus and the area under the curve? Whoever cared what was under the damn curve? But you had to study this. You don’t need this in the stock market. So, all you have to know is that it’s always going to be scary, there’s always going to be something to worry about. You just have to forget all about that.. Cut it all out and own good companies or own turnarounds. Study them and you’ll do well and that’s all there is and I’m ready for questions.