Peter Lynch: How to Invest Better Than Wall Street (Rare Interview)

Summary

In this interview, Peter Lynch, renowned money manager and author of 'One Up on Wall Street,' discusses his new book 'Beating the Street.' Lynch emphasizes the importance of understanding one's natural advantages when investing in stocks and advises against gambling on unfamiliar companies. He shares his philosophy of investing in what you know, using personal anecdotes and examples like his wife's discovery of a superior product. Lynch also touches on the importance of encouraging investment and job creation through policies like lower capital gains taxes and less regulation, and he offers insights into the economic plan of President Clinton, advocating for a balanced approach to taxation and spending.

Takeaways

• 😀 Peter Lynch, known as America's top money manager, emphasizes the importance of understanding one's natural advantages and using them wisely in investing.
• 🏆 Lynch's success with the Fidelity Magellan Fund highlights the value of expert stock picking and the potential for maximizing profits through informed investment strategies.
• 👨‍👩‍👧‍👦 Lynch's personal decision to step back from managing funds to spend more time with his family underscores the balance between professional success and personal fulfillment.
• 📚 His book 'Beating the Street' offers practical advice on stock selection and profit maximization, aiming to empower individual investors.
• 📉 Lynch points out the irony that while people are often deterred from activities they perceive they are not skilled at, the same does not apply to stock market investments, where many participate despite a lack of understanding.
• 💡 He advocates for a simple yet effective investment philosophy: if you can't explain a company's value proposition to a 10-year-old, you probably shouldn't invest in it.
• 🛍️ Lynch discusses the potential of retail and consumer goods companies, suggesting that understanding the products and services one uses daily can provide a solid foundation for smart investing.
• 📈 He provides examples of companies that have shown significant growth, illustrating how focusing on a few good stocks over a lifetime can yield substantial returns.
• 🏢 Lynch argues against the common practice of investing in industries one is not familiar with, suggesting that leveraging one's own industry knowledge can be a significant advantage.
• 🌐 He touches on the broader economic context, including discussions on tax policies, government regulations, and the importance of fostering an environment that encourages investment and entrepreneurship.

Q & A

What was Peter Lynch's role at Fidelity Magellan Fund?

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 managing money?

Peter Lynch decided to quit managing money to spend more time with his wife and children, as he was working long hours and traveling extensively.

What did Peter Lynch do after reducing his work hours?

After reducing his work hours, Peter Lynch spent more time with his family, made breakfasts and lunches for his kids, and got involved in charity work, particularly focusing on inner-city schools, libraries, and housing.

What is the main advice Peter Lynch gives to people about investing in stocks?

Peter Lynch advises people to invest in what they know and understand, emphasizing that if they can't explain a company's business to a 10-year-old in two minutes, they shouldn't invest in it.

Why did Peter Lynch write 'Beating the Street' after already writing 'One Up On Wall Street'?

Peter Lynch wrote 'Beating the Street' to further explain the advantages individuals have in stock investing and to encourage people to invest on the right basis, noting that the percentage of people's assets in stocks had decreased since the publication of his first book.

What is Peter Lynch's view on the importance of understanding a company's fundamentals?

Peter Lynch believes that understanding a company's fundamentals is crucial for investors. He suggests that if investors cannot understand what a company does, they should not invest in it.

How does Peter Lynch feel about the capital gains tax and its impact on investment?

Peter Lynch is against high capital gains taxes, arguing that they discourage people from investing. He mentions that countries like Japan have much lower rates, which are more encouraging for investors.

What does Peter Lynch think about the role of government in regulating businesses?

Peter Lynch acknowledges the need for government regulation to protect consumers and employees but criticizes excessive regulation that can stifle business growth and innovation.

What is Peter Lynch's opinion on the economic policies of the Clinton administration?

Peter Lynch supports the Clinton administration's focus on reducing spending and increasing investment, but he is critical of high taxes on unearned income and advocates for a reduction in capital gains tax.

How does Peter Lynch suggest that individuals can leverage their natural advantages in the stock market?

Peter Lynch suggests that individuals should invest in industries they are familiar with, such as their own profession or local businesses, to leverage their knowledge and understanding of those sectors.

Outlines

00:00

💼 Peter Lynch's Investment Wisdom and Life Transition

Peter Lynch, renowned as America's top money manager by Time Magazine, discusses his career at the Fidelity Magellan Fund and his decision to retire to spend more time with his family. He emphasizes the importance of understanding one's natural advantages in investing, such as familiarity with certain industries or products. Lynch also talks about his new book, 'Beating the Street,' which offers advice on stock picking and profit maximization. He shares his personal experience of reducing work hours to focus on family and charity work, including his involvement with inner-city schools and hospitals. Lynch's philosophy on investing is highlighted, where he stresses the correlation between a company's earnings and its stock performance over time, advocating for investment in what one knows and understands.

05:01

📈 The Importance of Industry Knowledge in Stock Investments

In this segment, Peter Lynch elaborates on the significance of industry knowledge for investors, suggesting that people often fail to capitalize on their natural advantages. He criticizes the common practice of investing in unfamiliar sectors, such as someone in the restaurant industry buying biotechnology stocks. Lynch advocates for investing in what one knows, using examples of successful investments in the restaurant industry like McDonald's, Dunkin' Donuts, and others. He also discusses the unpredictability of economic factors like interest rates and the economy, and how these factors are often overemphasized in stock market decisions. Lynch shares his experience of working with younger analysts and his views on the Clinton economic plan, advocating for policies that encourage investment and job creation.

10:01

💼 Peter Lynch's Views on Economic Policies and Corporate Strategies

Peter Lynch shares his views on economic policies, particularly the need for lower capital gains taxes and reduced regulations to encourage business growth and job creation. He criticizes the high capital gains rate in the U.S. and suggests that it hinders investment. Lynch also discusses the importance of consumer protection and the role of government in breaking up monopolies, using IBM as an example of a company that lost business due to technological shifts and market changes. He suggests that IBM needs new strategies and possibly a new leadership direction to adapt to the changing technology landscape. Lynch also touches on the success of Microsoft and Bill Gates, highlighting the importance of being in the right place at the right time with the right product.

15:01

🌐 Global Economic Outlook and Lynch's Stock Picks

In the final paragraph, Peter Lynch discusses his outlook on the global economy, predicting an upturn that would benefit cyclical stocks in industries like paper, aluminum, and steel. He suggests that these industries, having cut costs, are well-positioned to profit when the economy improves. Lynch also mentions specific companies he finds interesting, such as OBA Pan, a food company, and Jay Baker, a retailer, indicating that he prefers companies he can understand and that have room for growth. He concludes with a general advice to investors to look for companies that are on the right track and have created good businesses, without explicitly recommending to buy these stocks.

Keywords

💡Natural Advantages

Natural advantages refer to the inherent strengths or benefits that individuals possess due to their personal experiences, knowledge, or circumstances. In the context of the video, Peter Lynch emphasizes that people often overlook their natural advantages when it comes to investing in stocks. For example, someone working in the restaurant industry would have a better understanding of the dynamics within that sector, which could give them an edge in identifying successful investments.

💡Stocks

Stocks are shares in the ownership of a company that are bought and sold on various stock exchanges. The video script discusses the common misconceptions about investing in stocks, suggesting that many people treat it as a gamble rather than an investment based on understanding and knowledge. Peter Lynch advocates for a more informed approach to stock investment, leveraging one's natural advantages and industry insights.

💡Mutual Funds

Mutual funds are investment vehicles consisting of a portfolio of stocks, bonds, or other securities, managed by a professional fund manager. The script mentions that the percentage of people's assets invested in stocks and mutual funds has decreased over time, indicating a shift in investment behavior away from direct participation in the stock market.

💡Investment Clubs

Investment clubs are groups of individuals who pool their money to make investments, often for educational purposes. The video script highlights the success of investment clubs in the 1980s, where a significant number of them outperformed the market, suggesting that collective and informed decision-making can be effective in stock investment.

💡Earnings

Earnings refer to the profits a company makes, which are a key indicator of the company's financial health and often directly influence its stock price. Peter Lynch in the script stresses the importance of focusing on a company's earnings as a primary factor in determining the potential growth of its stock, rather than external economic factors.

💡Recession

A recession is a period of economic decline, typically characterized by a drop in GDP, high unemployment, and reduced industrial activity. The script mentions the recession of 1982 as an example of an economic downturn that was not predicted by experts, illustrating the unpredictability of such events and the challenges they pose to investment strategies.

💡Capital Gains Tax

Capital gains tax is a tax on the profit made from selling an asset for a higher price than what was paid for it. In the video, the discussion around capital gains tax highlights the impact of tax policies on investment behavior, with Peter Lynch advocating for lower rates to encourage investment.

💡Regulations

Regulations are rules or directives made and maintained by an authority to control certain behaviors or activities. The script touches on the topic of regulations, particularly in the context of business operations, where Peter Lynch argues for less paperwork and red tape to encourage entrepreneurship and business growth.

💡Deficit

A deficit occurs when a government's expenditures exceed its revenues, leading to borrowing to cover the difference. The video script discusses the growing deficit as a concern, with Peter Lynch expressing the need for a balance between increased taxes and reduced spending to manage the fiscal health of the country.

💡Cyclical Stocks

Cyclical stocks are shares in companies whose business performance is closely tied to the ups and downs of the overall economy. In the script, Peter Lynch suggests looking at cyclical stocks as a potential investment strategy during economic recovery, as these stocks are likely to perform well when the economy improves.

💡Economic Stimulus Package

An economic stimulus package refers to government spending or tax cuts intended to boost economic activity. The script includes a critique of stimulus packages, with the suggestion that market forces and business growth are more effective in creating jobs and economic recovery than government intervention.

Highlights

People often fail to recognize and utilize their natural advantages, which is detrimental.

Individuals tend not to engage in activities they believe they are not skilled at, such as ice skating or playing the cello, yet they still venture into stock market investing without hesitation.

Peter Lynch, known as America's top money manager by Time Magazine, shares his insights on managing the Fidelity Magellan Fund and his book 'Beating the Street'.

Lynch emphasizes the importance of understanding one's own industry or local businesses when investing in stocks.

He discusses his personal decision to leave his high-pressure job to spend more time with his family and engage in charitable activities.

Lynch's philosophy is that if you understand a company and its products, you can make informed investment decisions.

He argues that there is a direct correlation between a company's earnings and the performance of its stock over time.

Lynch advises against investing in companies or industries that one does not understand.

He shares his experience of cutting back work hours to focus on family and charity, while still maintaining an office at Fidelity.

Lynch's view on the Clinton economic plan, advocating for more investment and less spending, aligns with his investment philosophy.

He expresses concern over the high capital gains tax rate in the U.S., suggesting it discourages investment.

Lynch believes that small businesses are the primary job creators and that government policies should encourage entrepreneurship.

He discusses the challenges faced by IBM and the rise of Microsoft, highlighting the importance of adapting to technological changes.

Lynch shares his thoughts on Ross Perot and the impact of political decisions on the economy.

He provides examples of companies he finds interesting, such as Au Bon Pain and Jay Baker, without explicitly recommending them as investments.

Lynch concludes with his belief in the cyclical nature of the economy and the potential for certain industries to improve.

Transcripts

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

cellist

you're not going to try it but people

are buying stocks anyway

they're not discouraged they just think

it's a gamble

we begin with peter lynch time magazine

has called him america's number one

money manager

during the 13 years he headed the

fidelity magellan 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 five years ago you just said and

i've been managing all this money i'm

gonna do

i'm gonna quit i'm gonna yep that's

right and what and you went to do what

well actually i want to spend more time

my wife and my children right

and it was an interesting situation

because i loved my job i adored my job

and i liked outside activities and when

i was young

you know i didn't wasn't involved in

charity work until i was 30. yeah no

activities

younger children you just read them a

book and a good night moon and they fall

asleep and it's all over

when they get older this is more time

involved so i enjoyed the family

i was i was leaving for work at six in

the morning i was getting home at seven

o'clock at night six 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 well i cut back from

about a

80 a 90 hour a 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

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 to my

opinion you have to go somewhere to do

something if you stay at home you

want to be answering the telephone or

watching cartoons oh yeah it's like

falling asleep taking a nap so she does

the hard work can i go i go fidelity

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 know helping people manage their

money or no not at all

just i'm some of the charities i'm on

the investment committee of some of the

museum of fine arts the you know 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

okay okay

first of all i was very lucky i wrote it

with john rothschild he was made he made

a big difference so he but

i think the reason i wrote it is the

firs 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 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 percent of their financial

assets including their house

and stocks and mutual funds and 80 that

was down to 25

it's now down to 17 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 right if

you're not willing to do these things

you should leave your money in the bank

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 the

story of your wife and her hose

your wife

your wife said these are the greatest

things i've ever seen right and when

your wife said that you knew that this

was a product that was better right you

used to stay at la quinta

motel right the service was better

whatever was better the price is good

and the price was good too 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 make a good product then

their earnings are going to go up

therefore the stock's going to go up

right

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 do i don't think people

understand there's a hundred percent

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 happening

the price of oil

who's the president who's being

nominated for the supreme court it's the

ozone layer

it has nothing to do mcdonald's earnings

go up the next 10 years the stock will

go

but what they will say to you peter is

that as you know and why am i telling

you this but

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 to the movies or whatever they do

and and therefore you got to pay

attention to these other things because

they impact on earth they are very

important but you have no idea of

knowing what they're going to do alan

greenspan is the head of the federal

reserve right

he cannot predict interest rates yes

he'd be the first to influence somebody

can't predict him he cannot predict what

long-term insurance 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 yes 1982

with 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

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'm saying people have natural

advantages

yeah 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 chili's you saw cracker barrel you

saw dunkin donuts kentucky fried chicken

taco bell these are all 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 your life right 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 within industry

you only need a few stocks a decade

how many good stocks you need a lifetime

instead of people they're in the

restaurant industry

they're buying biotechnology stocks the

people in the campus

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 cellist

you're not going to 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 two dollars

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 too 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 advances what

all these things are at auto backplanes

and megaflops who knows what all these

so buy what you know buy in your

industry buy what you know buy local

businesses

so suppose you you don't have an

industry i mean you know you don't

really

you what you buy company local companies

right come as your own industry

ten years after walmart went public ten

years haven't woken up

ten years after went public it's a 25

year old company now right you could

have bought the stock

and made 50 times your money on it 50

times this is if you bought it 10 years

after after it was public already it

already gone up five-fold

so you could have made 250 fold but i'm

saying let's say you were in a town they

came into it they said

boy these prices are great they're doing

terrific i like the bargains

and 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 ten thousand dollars in some

stock they hear on a bus

so if you did a little bit of research

you say walmart's only only 10 percent

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 this

it's more of the same plus

i show examples it's it's a touch more

detail this actually shows me an action

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 retail industry i try to make it

very simple 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 do 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 picked walter they understood these

companies they also picked ibm i lost

money on that too yeah i mean everybody

makes mistakes but it did yeah but i'm

saying this is

this was this was the school saint agnes

school in arlington mass

but in addition in the decade of the 80s

there's 8 000

investment clubs these are amateurs sort

of right

average people just investing these

investment clubs 62 percent of them

of these clubs beat the market and the

decade of the 80s

only 25 percent of professionals beat

the market let me go back to one other

subject you

after you're coming back to fidelity

aren't you just i'm not going to do

something

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 zero lifestyle

not totally i'm not going to run another

fund 13 years is 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 anybody other than

yourself no

no 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

funds pension funds no it's nothing i'm

obviously

cold turkey no all right cold turkey

cold turkey

are you happy you did this i mean i was

delighted it's good 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 these 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 savings you

absolutely have to

invest more in education you have to

invest more in companies

you have to invest less than 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'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 the income

taxes

and i fill out the number for what you

made the money you put in the bank is

unearned income what a

it's it's an insulting term 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 gains rate in japan is 10

zero zero

right i mean we're not encouraging

people to save we're not encouraging

people to invest so you're encouraging

people to speak in favor of the

elimination of the capital gains tax

that bush reducing it or eliminating it

and i'm glad that clinton didn't raise

it i mean he raised other taxes

this fairness thing i understand 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

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 want it to get spin out of control

you don't buy into the stimulus package

don't buy into that at all you believe

that we don't need to go out and create

jobs charlie

we've had eight recessions since world

war ii 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 as soon as you say that as you

know

people are saying yeah peter but look

what we did when ronald reagan came to

the white house

the deficit was what 70 billion 65

70 billion dollars and now it's

approaching 350 billion dollars right

and the amount of money that we

have to spend to pay off the interest on

that debt is saddling us

and destroying us i agree you're right

i agree with you don't tell me how many

jobs we could now but

you can always create jobs if you're

willing to no no the government didn't

create that

right the 500 largest companies in the

80s

eliminated 3 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 right

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 start

that's what i should

say small companies creating jobs 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 you do that by what kind

of government policies other than

a zero capital gains or a 10 capital

gains

lower interest what the capital is that

now 20 28 28

plus it's the highest capital gains rate

we've ever had in the history of this

country right 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

sale you want to have lower interest

rates lower paperwork

people start a business now they have

this much paperwork to fill out that's

regulation they go crazy

that's crazy you got to cut that out

yeah well okay but that means something

i mean

a lot of people say without those kind

of regulations then people would be

creating dumping into the rivers and

and not protecting you but these are

regulations it's not 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

exactly some of this paperwork is

mind-blowing sometimes you can do it

with one piece of paper

one that's right i mean okay that would

be a good policy i think clinton

it really wants to make it work yeah the

capitalist system works

obviously you want to protect the

consumer and business people carry 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 yeah they went to companies

and it went in with very

talented experienced people ibm's ibm

and explain to people how to use

computers

today all these companies like johnson

johnson's american

bristol miners 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 no no they do internally they have

experts internally now that are trained

in it's called now management

information systems they have all these

fancy acronyms

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's 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

well a lot of people saying they ought

to just mark myerson the number two guy

to ross perot 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 there's nothing wrong

with the direction they're going they

will turn it around

if 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's a lot of

bright people he said oh my god

his net worth alone might be more than

ibm's profits

individually yeah his brilliance is a

lot of brilliant people

and a lot of luck ibm adopted ms-dos

as 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'd wait a

couple years they could use their own

so ms-dos 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

use that to come along with windows so

he was there he was like the gasoline

when people whatever car if you had all

if you had if you're the rights to all

the gasoline you don't care whose cars

are 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 yeah

absolutely and there were other people

making races to use his blades

exactly so he had all the razor blades

around

no obviously he's a bright person and

rich yeah

and eds eds you know ross perot what do

you think of pearl

i think he's a well-meaning talented guy

guys done a lot of good things in

education

for president i did you did yeah perot

was your guy yep i sure didn't why

well it was sort of a protest vote

exactly because i know in our state

you know i mean in our state that's just

yeah i know in massachusetts

the democrat was going anyway and i

really thought his concepts of cutting

down on the deficit and more investment

oh cutting down deaths is a good idea

oh it's absolutely a good idea it's a

terrific idea give me five good stocks

to 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 well

i think not touting 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

me too

they're only in about 20 percent 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 times

selling for what's fully priced oh i

mean it's 25 times next year's earnings

i mean that's very high right 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 is 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

and it's

even better in 94. better in 94 because

right now it's slumping in germany and

it's slumping in japan

right so i think now is the time to look

at cyclical companies

in the paper industry the aluminum

industry the steel and see 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 are

these little small companies we should

look at

oh there's tens of thousands a small

company well i

i guess i'd say all about bands the

smaller part 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

one up on wall street was one of the

better best sellers

ever to about wall street and it is very

simple which most things are very simple

and when you understand them you can

understand what makes the world work i

appreciate you being here