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Stocks I’d Avoid
In the 9th chapter, Peter Lynch talks about the stocks that one should avoid investing in. He gives several criteria:
1. People should avoid the hottest stock in the hottest industry because these stocks go up fast, and when the price falls, it falls too.
2. Another kind of stock which we should avoid is one, where the company has been tagged and labelled as the next IBM or the next McDonald’s, etc. because whenever a stock is tagged like this, it usually never becomes the next something.
3. According to Peter Lynch, the value of shareholders is lost when the acquisitions are beyond their understanding.
4. Lynch writes that people may from time to time, come and tell one about a company that they think is great for investment. People need to avoid these ‘whisper stocks’ as they are hypnotic and have an appeal to one's psychology.
5. Lynch says that “The company that sells 25 to 50 percent of its wares to a single customer is in a precarious situation meaning, that the company is failing to run efficiently. Thus, he adds that "If the loss of one customer would be catastrophic to a supplier, I’d be wary of investing in the supplier.”
6. He asks his readers to be wary of companies which have exciting and amusing names because they may often turn out to be mediocre while the companies with boring names that don’t attract investors may end up being valuable.
