Peter Lynch: Why 1% Investors Don't Fail

Summary

In this interview, Peter Lynch, the renowned money manager and author of 'Beating the Street,' shares his insights on stock picking and the importance of investing in what you know. Lynch, who retired from managing the Fidelity Magellan Fund to spend more time with his family, discusses his philosophy of investing in familiar companies and industries. He emphasizes the correlation between a company's earnings and its stock performance, advising against speculation and promoting a long-term, informed approach to investing. Lynch also touches on the Clinton economic plan, advocating for lower capital gains taxes and less government spending to encourage investment and job creation.

Takeaways

• 📈 Peter Lynch, known for managing the Fidelity Magellan Fund, shares investment wisdom in his book 'Beating the Street', emphasizing the importance of understanding stocks before investing.
• 🏆 Lynch highlights the advantages individual investors have over professionals, such as a personal understanding of products and services, which can lead to successful stock picks.
• 🚫 He advises against investing in companies or industries that one does not understand, suggesting that a simple explanation of a company's value to a 10-year-old is a good test of investment readiness.
• 🏠 Lynch made a significant life change, stepping back from managing money to spend more time with his family, demonstrating the value he places on work-life balance.
• 📚 He encourages investors to focus on long-term earnings growth of companies rather than short-term market fluctuations or external economic factors.
• 💼 Lynch discusses his post-Fidelity role, which includes working with younger analysts and engaging in charitable activities, showing his commitment to giving back and mentoring.
• 💼 He also touches on the importance of government policies that encourage investment and job creation, such as lower capital gains tax rates and reduced regulations.
• 🌐 Lynch comments on the shift in technology from mainframe computers to personal computing, illustrating how IBM's business model was disrupted by the rise of Microsoft and the personal computer industry.
• 📊 He provides insights into the performance of investment clubs, noting that many outperformed professional fund managers in the 1980s, suggesting that amateur investors can be successful with the right approach.
• 🌟 Lynch offers examples of companies he finds interesting, such as Au Bon Pain and Supercuts, emphasizing the potential of businesses with room for growth and a clear understanding of their market.

Q & A

What was Peter Lynch's role at Fidelity?

Peter Lynch was the manager of the Fidelity Magellan Fund, which was a top-ranked General Equity mutual fund during his tenure.

Why did Peter Lynch decide to quit his job at Fidelity?

Peter Lynch decided to quit his job to spend more time with his family, as he was working long hours and traveling extensively, which left him with little time for his wife and children.

How did Peter Lynch's daily routine change after leaving Fidelity?

After leaving Fidelity, Peter Lynch reduced his workweek from 80-90 hours to 40-50 hours, making breakfasts and lunches for his kids, helping with their schoolwork, and getting involved in charitable activities.

What is the main advice Peter Lynch gives to individual investors in his book 'One Up On Wall Street'?

Peter Lynch advises individual investors to invest in what they know and understand, emphasizing the importance of recognizing one's own advantages and natural industry insights.

What was the trend in the percentage of people's assets invested in stocks between 1960 and the time of the interview?

Between 1960 and the time of the interview, the percentage of people's financial assets invested in stocks and mutual funds decreased from 40% to 17%.

Why does Peter Lynch believe that focusing on a company's earnings is a good investment strategy?

Peter Lynch believes that there is a 100% correlation between a company's earnings over several years and the stock's performance, making it a reliable strategy for long-term investment.

What is Peter Lynch's view on the importance of understanding a company before investing in its stock?

Peter Lynch stresses the importance of understanding a company's business model and being able to explain it simply. He suggests that if you can't explain a company's business to a 10-year-old, you shouldn't invest in it.

How does Peter Lynch feel about the role of government in creating jobs and stimulating the economy?

Peter Lynch believes that jobs are created by companies starting businesses, not by government intervention, and that the economy will naturally recover from recessions without the need for stimulus packages.

What is Peter Lynch's opinion on the capital gains tax rate and its impact on investment?

Peter Lynch is critical of the high capital gains tax rate, arguing that it discourages people from investing and that a lower rate would be more encouraging for investors.

What advice does Peter Lynch have for investors regarding the types of companies to watch or invest in?

Peter Lynch advises investors to look for companies they understand and that are in industries they are familiar with, such as local companies or those in cyclical industries that have cut costs and are poised to benefit from an economic upturn.

Outlines

00:00

📈 Peter Lynch's Investment Wisdom and Personal Transition

In this segment, Peter Lynch, once hailed by Time Magazine as America's top money manager during his tenure at the Fidelity Magellan Fund, discusses his decision to step back from his high-intensity job to spend more time with his family. He emphasizes the importance of understanding one's investments and the advantages that individual investors have over professionals. Lynch also touches on his involvement in charity work and his return to a reduced workload at Fidelity, focusing on mentoring younger analysts. He shares insights from his book 'One Up on Wall Street' and his views on the importance of investing in stocks based on a deep understanding of the companies involved.

05:00

💼 Practical Investment Strategies and Market Behavior

Peter Lynch continues the discussion by advocating for a hands-on approach to investing, suggesting that individuals should invest in industries they are familiar with to leverage their natural advantages. He criticizes the tendency of investors to diversify into unfamiliar sectors and the common mistake of treating stock investing as a short-term gamble. Lynch also addresses the unpredictability of economic factors such as interest rates and the economy, arguing that focusing on these can distract from the fundamentals of a company's performance. He shares anecdotes from his book, illustrating how understanding one's industry can lead to successful investment decisions.

10:03

🏛️ Reflections on Economic Policies and Corporate Strategies

In this part of the interview, Lynch discusses the Clinton economic plan, expressing approval of its focus on investing over spending. He criticizes the high capital gains tax rate and advocates for policies that encourage investment and business creation. Lynch also comments on the role of government in regulating businesses, balancing the need for consumer and environmental protection with the burden of excessive regulation. He provides his perspective on the challenges faced by companies like IBM and the importance of adapting to changing market conditions and technological advancements.

15:04

🌐 Global Economic Outlook and Company Performance

Peter Lynch concludes the interview with his thoughts on the global economic situation, suggesting that cyclical stocks in industries like paper, aluminum, and steel could be promising as the economy recovers. He also mentions specific companies, such as Au Bon Pain and Supercuts, as examples of businesses with growth potential. Lynch emphasizes the importance of understanding a company's fundamentals and market position before investing, and he shares his outlook on the economy improving in the coming years, providing a hopeful note for investors.

Keywords

💡Fidelity Magellan Fund

The Fidelity Magellan Fund is a mutual fund managed by Peter Lynch, who is referred to as America's number one money manager in the script. Under his management, it became a top-ranked General Equity mutual fund. The fund's success is a testament to Lynch's investment strategies and is central to the discussion of his investment philosophy.

💡Stocks

Stocks are shares in the ownership of a company. In the script, Peter Lynch discusses the importance of investing in stocks and how individuals can maximize profits by picking the right ones. He emphasizes the need for investors to understand the companies they invest in, as this knowledge is crucial for making informed decisions.

💡Charitable Activities

Charitable activities refer to the voluntary giving of help, typically in the form of money or time, to those in need. After stepping down from managing the Fidelity Magellan Fund, Peter Lynch engaged in more charitable work, focusing on inner city schools, libraries, and housing. This shift in his life's focus is an important aspect of the narrative, demonstrating his commitment to social causes.

💡Investment Committee

An investment committee is a group responsible for overseeing and making decisions about an organization's investment strategy. In the script, Lynch mentions his involvement with the investment committees of institutions such as the Museum of Fine Arts, indicating his continued influence and expertise in the field of finance even after leaving active fund management.

💡Earnings

Earnings refer to the profits a company makes over a specific period. In the context of the video, Lynch explains that there is a direct correlation between a company's earnings and the performance of its stock over time. He uses this concept to advise investors to focus on companies with strong and growing earnings.

💡Recession

A recession is a period of negative economic growth that lasts for at least two consecutive quarters. The script mentions the recession of 1982, highlighting the unpredictability of economic downturns and the challenges they pose to investors. Lynch uses this example to stress the importance of not relying on economic forecasts for stock picking.

💡Capital Gains Tax

Capital gains tax is a tax on the profit made from selling an asset that has increased in value. In the script, Lynch discusses the high capital gains tax rate in the United States and its potential impact on investment decisions. He suggests that lower capital gains tax rates could encourage more investment in the stock market.

💡Regulations

Regulations are rules set by authorities to control the conduct of a particular activity or industry. The script touches on the debate between the need for regulations to protect the environment and employees, and the desire for less paperwork and lower barriers for starting businesses. Lynch argues for a balance that encourages entrepreneurship without compromising safety and environmental standards.

💡IBM

IBM is a multinational technology company that has been a major player in the computer industry. In the script, Lynch discusses the challenges faced by IBM as the technology landscape shifted, leading to a loss of business to companies that had internal IT expertise. This example illustrates the importance of adapting to changes in technology and market demands.

💡Microsoft

Microsoft is a leading technology company known for its software products, including the widely used Windows operating system. The script mentions Bill Gates and Microsoft's success, contrasting it with IBM's struggles. Lynch uses this comparison to highlight the importance of innovation and strategic positioning in the technology sector.

Highlights

Peter Lynch, known as America's top money manager, shares insights from his experience leading the Fidelity Magellan Fund.

Lynch made a significant life decision to quit his high-stress job to spend more time with family.

He emphasizes the importance of family time and the shift in work-life balance after quitting his job.

Lynch discusses his new role in life, focusing on charity work and involvement in educational and community development.

His book 'Beating the Street' offers advice on stock picking and profit maximization, based on Lynch's extensive experience.

Lynch argues that the percentage of people's assets in stocks has decreased over time despite a favorable market.

He critiques the flawed methods of individual investors in the 1980s, suggesting a need for better investment strategies.

Lynch's investment philosophy is centered around understanding a company's earnings and potential for growth.

He advises against investing in companies one does not understand, advocating for a hands-on approach to investment.

Lynch shares anecdotes about successful investments, such as his wife's insight into a hosiery company's potential.

He discusses the importance of not overreacting to market fluctuations and focusing on long-term company performance.

Lynch argues against trying to predict economic factors like interest rates and instead suggests focusing on company fundamentals.

He shares his views on the Clinton economic plan, advocating for more investment and less spending.

Lynch expresses his concern over high capital gains tax rates and their impact on investment incentives.

He provides examples of successful companies and industries, like the restaurant sector, where investors can leverage their industry knowledge.

Lynch talks about his return to Fidelity, working with younger analysts to share his experience and knowledge.

He reflects on his satisfaction with his new life, emphasizing the importance of work-life balance and personal fulfillment.

Lynch offers a list of companies to watch, highlighting those with strong business models and growth potential.

Transcripts

we begin with Peter Lynch Time Magazine

has called him America's number one

money manager during the 13 years he

headed the Fidelity mellan Fund it was a

top ranked General Equity mutual fund

his new book beating the street offers

advice on picking stocks and maximizing

profits and he's here to talk to us

about a lot of things including his own

dramatic decision uh what four or five

years ago Peter welcome to the broadcast

four or five years ago you just said and

I've been managing all this money I'm

going to do I'm going to quit I'm yep

that's right and what and you went to

what well actually I wanted to spend

more time with my wife and my children

right and it it was an interesting

situation because I love my job I adored

my job and I and I liked outside

activities and when I when I was young

you know I didn't wasn't involved in

charity work until I was 30 no

activities younger children you just

read them a book and good night Moon and

they fall asleep and it's all over when

they get older there's there's more time

involved so I enjoyed the family I was I

was leaving for work at 6:00 in the

morning I was getting home at 7:00 at

night 6 days a week this was in Boston

yeah traveling 14 days a month it was

just too much so I said you know I I

said that's it I can't take it and

fortunately I had made enough money to

say I could give up the jobs I didn't

have to give up the family or the

outside activities and so what happened

then so you did what with your life well

I cut back from about a 80 890 hour week

to 40 or 50 hour week and I in the

morning I make breakfasts and lunches

for the kids and I do the spelling words

and the Spanish words and Carolyn does

the math and the science and I uh see

Carol in the morning and off I go to a

place you have to go some my opinion you

have to go somewhere to do something if

you stay at home you wind up answering

the telephone or watching cartoons so I

or falling asleep taking a nap so she

does the hard work and I go I go Fel

gave me an office I have a secretary and

I spend majority of the time working on

charity things like inner city schools

Inner City libraries inner city housing

you helping people manage their money or

no not at all not that I'm some of the

chares I'm on the investment Committee

of of some of the Museum of Fine Arts

you I'm involved in Mass General

Hospital Boston College but United Way

but all the extra things I added to were

real hands on actually being involved in

charitable activities you wrote a book

called one up on Wall Street and I think

that's one of the best selling books

ever about Wall Street if I'm not

correct you can correct me and so so why

then did you write another book okay

okay first I was very lucky I wrote it

with John Rothchild who he was made it

he made a big difference so he but I

think the reason I wrote it it was the

fir I try to explain to people their

great advantages their edges they have

and that they should get involved in

stocks right and they should do it on

the right basis this was on the first

book right yeah and obviously I didn't

make a great impression because the

percent of people's assets involved in

stocks has gone down in 1960 people had

40% of their financial assets including

their house in stocks and mutual funds

and 80 that was down to 25% it's now

down to 177% and why do you think that

is well I think people in the decade of

the 80s was the best decade this Century

for stocks I think people managed to

lose money in the 80s doing it

themselves because their methods were so

flawed so I I really feel as though I

wanted people to understand I don't want

anybody to buy a stock I'm saying if

you're going to buy a stock you should

do certain things if you're not willing

to do these things you should leave your

money in the bank your your philosophy

is is simple and I'm remembering this

from the previous book I think we're now

talking about the previous book correct

your philosophy was if you find

something that you identify with I

remember that was a story of your wife

and her hose your wife kept saying you

legs and pant your wife said these are

the greatest things I've ever seen and

when your wife said that you knew that

this was a product that was you used to

atent mot service

whatever the price was good and you said

this is a place that I can determine I

Peter Lynch can tell that this is a good

product right if these people making a

good product then their earnings are

going to go up therefore the stocks

going to go up and that's the kind of

decision-making process you ought to go

through right do I have it you've got it

exactly right well I I don't think

people understand there's 100%

correlation with what happens to a

company's earnings over several years

and what happens to the stock if the

company McDonald's has done very well as

a company right the stock has done very

well people worry about too much money

supply what's happened to the price of

oil whe who's the president who's being

nominated for the Supreme Court the

ozone layer it has nothing to do

McDonald's earnings go up the next 10

years the stock will go up yeah but what

they will say to you Peter is that as

you know and why am I telling you this

but I it's fun to tell you this they're

telling you that these other things

influence the amount of earnings of a

particular company if we're in a

recession people are not going to spend

as much money on going the movies or

whatever they do and and therefore you

got to pay attention to these other

things because they impact on ear they

are very important but you have no idea

of knowing what they're going to do Alan

Green span's the head of the Federal

Reserve right he cannot predict interest

rates yes he'd be the first to he can

influence them but he can't predict them

he cannot predict what long-term

interest rates are going to be one year

from now two years from now three years

he's even surprised how low they are now

right so how am I supposed to predict

interest rates how am I supposed to

predict the economy you certainly

remember the recession of 82 1982 we had

a 20% prime rate 14% unemployment 12 %

inflation I don't remember anybody

telling me in 1980 or 81 that was going

to happen all of a sudden we had the

worst recession since the depression I

didn't read about in the paper so it's

crazy to think about these things here's

a quote from you I own Dunkin Donuts

when you own Dunkin Donuts you don't

have to worry about Korean imports you

don't have to worry about M2 or M3 these

are money supply figures aren't they and

and what's happening to the money supply

this is the way you make money if you

don't understand what the company does

you should not be in it if you could

predict the stock market you could

predict the economy you could predict

interest rates if you go buy the wrong

stocks you're going to lose half your

money anyway right I I'm saying people

have natural advantages let's say what

you do for a living is you're involved

in the restaurant industry right you

supply paper products you supply kitchen

equipment you help build restaurants

right you saw McDonald's you saw Chi-Chi

you saw chilies you saw Cracker Barrel

you saw Dunkin' Donuts Kentucky Fried

Chicken Taco Bell these stories these

were 40 40 fold you made 40 or 50 times

your money you don't need to make that

kind of money many times in your life

right no no that's all you had to do was

follow the restaurant industry people

are in Industries they're in the

publishing industry they're in the

chemical industry the paper why don't

they just stay with an industry you only

need a few stocks a decade how many good

stocks you need a lifetime instead

people that in the restaurant industry

they're buying biotechnology stocks the

people in the chemical

IND the people in the chemical industry

are buying oil stocks it's absolutely

absurd people don't understand their

natural advantages and they don't use

them so that's that's bad number one but

worse number two is they don't if you

don't think you're a good ice skater or

if you're convinced you're not a good

chist you're not go out and try it but

people are buying stocks anyway they're

not discouraged they just think it's a

gamble yeah so therefore they go forward

and they they bet on one stock for a

week and a half and it goes up and they

they make $2 on it then they sell it and

they buy something else when three years

is over all they've done is generate a

lot of commissions they've probably lost

money that's a mistake so your advice is

what if you don't understand a company

if you can't explain it to a 10-year-old

in two minutes or less yes don't own it

because when it goes down let's say the

stock goes down two point you won't

understand what's going on what do you

do do you buy more do you do you do you

flip a chances are your broker doesn't

either you they he he or she certainly

doesn't know about it I mean who knows

what Advan what all these things are

with auto back planes and mega flops who

knows what all this so buy what you know

Buy in your industry buy what you know

buy local companies so suppose you you

don't have an industry I mean you know

you don't really well you buy local

companies companies in your own industry

10 years after WT went public 10 years

10 years after it went public it's a 25y

old company now right you could have

bought the stock and made 50 times your

money on it 50 times this if you bought

it 10 years after after it was public

already it already gone up fivefold so

you could have made 250 fold but I'm

saying let's say you were in town they

came into it and they said boy these

prices are great they're doing terrific

I like the bargains you checked it out

you spent a little bit of work on it

yeah I mean people are very careful they

when they buy a dishwasher they do some

research they'll put $10,000 in some

stock they hear on a bus so you a little

bit of research you say Walmart's only

10% of the country they're not even

saturated there why can't they go to the

rest of the country so is this this is

more of the same is it what it is it's

more the same plus I show examples it's

it's a a touch more detailed this

actually shows me an action I picked 21

stocks early in

1992 some work some don't I follow those

companies some of the companies the

fundamentals deteriorate some they

improve I watch those companies go

through the year I also explain the

retailing indust I try and make it very

simp and I talk about a wonderful

example is a seventh grade class yeah

the teacher of that read my book and my

first book that you were talking about

you you and I did a show on that in

Washington you remember that show this

is a long time ago she read the book and

I said if you made it through fifth

grade math you can do it in the stock

market she says okay she started

teaching it in seventh grade seventh

grade class these kids had to study

companies they had to look at their

balance sheets to see if they're solvent

and they pick stocks these stocks were

up 69% over two years when the market

was up only 20 they picked stocks like

limited they picked the Gap they pick

Walt they understood these companies

they also picked IBM I lost money on

that too I mean everybody makes mistakes

everybody did yeah but I'm saying this

is this was this was a school St agon

School in Arlington Mass but in addition

in the decade of the 80s there's 8,000

investment clubs these are amateur sort

of right average people just investing

these investment clubs 62% of them of

these clubs beat the market in the

decade of the 80s only 25% of

professionals beat the market let me go

back to one other subject you after

you're coming back to Fidelity aren't

you aren't you going to do something

when I when I finish this book I've been

working about one or two days a week the

last year and a half on this book right

now I'm done with the book I'm going to

go back to maybe one day a week working

with the younger analysts just listening

to them talking to them I'm not telling

them to buy zero sell lifestyle not

totally I'm not going to run another

fund 13 years was plenty of running a

fund I'm just going to work with younger

analysts let them ask questions I'll ask

them questions it's going to be a lot of

fun now do you still follow do you

manage any money for any other than

yourself no no manage I manage money

with other people for some Charities

right but no I don't manage anybody's

accounts you're not doing some mutual

fund some pension

fund turkey all right cold turkey did

you C turkey now are you happy you did

this I'm delighted it's great and you

like your new life oh it's fabulous

let's talk about the Clinton economic

plan what do you think of it well I

think his theories are excellent you

know we clearly which theories are

excellent well he claims that we're

going to do more investing and less

spending right and that statement you

can't argue with less consumption more

saving you absolutely have to invest

more in education you have to invest

more in companies you have to invest

Less in just spending money I mean today

people are encouraged to spend you spend

money let's say you put an addition on

your house you spend money on that that

you can get a tax deduction because

because the interest on it it's tax

deductible if you invest if you take

your money and put it in the bank you're

taxed at a very high rate they have this

incredibly unfair term it's called

unearned income when you every time I do

all income taxes

and I fill out the number for what you

made the money you put in the bank it's

unearned income what a it's it's an

insulting term but anyway if you if you

buy a stock and you make money on it you

pay a 28% tax on it yeah guess what the

capital gains rate is in Japan uh

Capital GES rate in Japan is 10% zero

zero right I mean we're not encouraging

people to save we're not encouraging

people to invest encouraging people

spend you're in favor of the elimination

of the capital gains tax that that bush

reducing it or eliminating and I'm glad

that Clinton didn't raise it I mean he

raised other tax

this fairness thing I understand and and

what about this tax the rich business

you you buy that I think fairness it's a

debate what's fair I think I certainly

think raising taxes is appropriate if

it's the same time you cut the spending

it's a lot easier to raise taxes than

cut spending if we can cut spending and

get government's share of the gross

national product reduced it'll be fair

but our country works very well it's

working extremely well I mean you just

don't want it to get spin out of control

you don't buy into the stimulus package

though don't buy into that at all you

believe that we don't need go out and

create jobs we've had eight recessions

since we're War Two we've got out of

every one of them this is number nine

there's nothing unique about the system

we'll get out of this one in the decade

of the 80s the 1980s we had 18 million

jobs in the United States yeah but but

soon as you say that as you know people

are saying yeah Peter but look what we

did when Ronald re came to the White

House the deficit was what $70 billion

6570 billion and it's approaching $350

billion and the amount of money that we

have to spend to pay off the interest on

that debt is saddling us and destroying

us and destroying I agree you're right I

I agree with that don't tell me how many

jobs we created 1980s because you can

always create jobs if you're willing to

no no that the government didn't create

that right the 500 largest companies in

the 80s eliminated three million jobs

eliminated 3 million and we added 18

million these 2.2 million businesses

started 2.2 million businesses started

in the ' 80s now some of them didn't

make it but if an average they have 10

employees today that's 22 million jobs

what the only thing that creates wealth

the only thing that creates taxes to pay

for all these wonderful things is jobs

there is something magic about jobs and

jobs come from companies starting that's

what I say small companies create jobs

right create all the jobs right so

that's what I'm talking this is not

voodoo economics this is the real thing

you have to encourage people to take

some risk to put their money out and go

start a business it's a risky

proposition and do that by what kind of

government policies other than a zero

capital gains or a 10% capital gains

lower interest rat what's the capital

gains at now 20 28% plus it's the

highest capital gains rate we've ever

had in the history of this country it's

never been this High I mean it's

terrible how high the capital gains rate

is that's not encouraging people invest

what you want you want to have lower s

you want to have lower interest rates

lower paperwork people start a business

now they have this much paperwork to

fill out on regulation they go crazy

that's crazy you got to cut that out

yeah oh well okay but then

people without those kind of regulations

then people would be creating dumping

into the rivers and and not protecting

the envirment these are regulations

protecting the health of their employees

I mean look what happened down in my

home state of North Carolina because of

you know the fire they had down there I

mean people say if you don't have some

kind of government regulation and

companies aren't doing their job to

protect their workers then this is not

the kind of society some of these

regulations relate to the size of your

paper clips I mean a lot of waste some

of his paperwork is mind and sometime

you could do it with one piece of paper

one that's it I mean that would be a

good polic I think Clinton it really

wants to make it work yeah the capital

system works obviously you want to

protect the consumer and and business

people Carri to extreme when the oil

Monopoly and the steel Monopoly that's

wrong too I mean I think trust should be

broken up there is a role for government

IBM what happened to them IBM had a

wonderful business they used to go to

companies like Fidelity Chase Manhattan

they used to come and explain to these

people how to use computers yeah they

didn't know how to use computers they

went to companies and went in with very

talented experienced people IBM and

explain to people how to use computers

today all these companies like Johnson

and Johnson's American Bristol Min they

have people in the company already that

know computers backwards and forwards

the same IBM people walk in with these

solutions they don't need all those

people so all these companies took IBM's

business away from them no no they do

internally they have experts internally

now that are trained in I it's called

now management information systems they

have all these fancy acronyms for it

they have skilled people all they want

now is software and a cheap box they

don't need all these so IBM was dealing

in a system that was very effective for

three or four decades now the technology

has moved to the chip the technology has

moved to the software it's not the box

it's not the storage so what should IBM

do what should this board of directors

of IBM which is looking for a new chief

executive officer what should they be

looking for I hear people saying they

ought to just Mort Myerson the number

two guy to Ross barow down there said

maybe they ought to dismember the thing

or maybe they ought to create all kinds

of little entrepreneurial companies from

within break it up they'll eventually

they have incredible technology they're

very skilled they have a lot of

determination right now unfortunately

it's sad they have too many employees

they have too many factories they try to

do it all themselves they're they're

they're working the right direction I

mean there's nothing wrong with the

direction they're going they will turn

it around they're in a hard process

because the technology is advancing all

the time what was the genius of Bill

Gates and Microsoft which now has a

higher net worth than IBM doesn't it

well he there a lot of bright people is

oh my God God his he his net worth alone

might be more than IBM's profits

I him individually yeah his Brilliance

as a lot of brilliant people and and a

lot of luck IBM adopted Ms Doss is the

operating system right they rushed the

market with the first computer they

needed an operating system and he had

the only one if they' waited a couple

years they could have used their own so

Ms became the basic operating system of

every computer whether it was a compact

computer the only computer system that

didn't use it was Apple Apple had their

own operating system so every computer

that went out there all over the world

needed MS DOS he uses used that to come

along with windows so he was there he

was like the the gasoline when people

whatever car if you had all if you had

if you had the rights to all the

gasoline you don't care whose cars or

said another way I mean IBM was making

all of these razors and and he was

making all the razor blades you got it

right yep absolutely and then there were

other people making razors to use his

his blades

exactly blades around no obviously he's

a bright person and and Rich yeah and

EDS EDS you know Ross per do you think

of perau I think he's a well-meaning

talented guy he's done a lot of good

things in education you vote for him for

president I did you did perau was your

guy y I sure did why well it was sort of

a protest vote because I know in our

state you know I mean in our state yeah

I knew in Massachusetts the Democrat was

going to win anyway and I really thought

his concepts of cutting down on the

deficit and more investment a cutting

down deficit is a good idea oh it's

absolutely a good idea it's a terrific

idea give me five good stocks to watch

watch not to buy but just to watch five

ideas that you think where people are

really on the right track and created a

good business not tting stocks America I

just want to know what Peter likes okay

well we have a company in Boston called

Oba pan it's a company that makes

croissants and they make Breads and they

have a state-of-the-art bagel they're

working on I can understand that company

too they're only in about 20% of the

country they're starting to roll right

now it's I think you know the price is

fully priced and I think now is the time

what it selling for what's fully priced

oh I mean it's 25 times next year's

earnings I me that's very high but I

think over a long period of time I'm

hoping the market goes down and the

stock will go down and I'm going to back

up the truck and buy a lot of shares I

think Now's the Time to look at cyclical

stocks I think the economy is going to

get better around the world in 94 it's

already getting better in 93 unit and

even better in 94 better in '94 because

right now it's slumping in Germany and

it's slumping in Japan so I think now is

the time to look at cyclical companies

in the paper industry the aluminum

industry the steel industry they've cut

the cost they're the lowest cost

producers in the world and when things

get better they're going to make a lot

of money what about little small

companies we should look at oh this tens

of thousands one small company well I

guess I'd say all pans the small on or

another one would be Jay Baker is a

relatively small they do it's a retailer

or Super Cuts they do haircuts that's a

small company Peter Lynch is back with a

new book called beating the street it is

always interesting to have him here uh

what up on Wall Street was one of the

better best sellers uh ever to about

Wall Street and it is very simple which

most things are very simple simple uh

and when you understand them you can

understand uh what makes the world work

I appreciate you being here thank sir