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Stocks 506: Great Investors: Peter Lynch

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1.
What was Peter Lynch's favorite investment metric?
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P/E ratio. Although he valued several, P/E ratio was his favorite.
2.
Companies whose sales and profits rise and fall in a regular fashion are called _______.
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Cyclicals. The cyclicals tend to be predictable.
3.
Which of the following was not a part of Peter Lynch's stock-picking approach?
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Focus on the market and the short term. Lynch argues that the stock market is completely irrelevant. Moreover, he thinks that it is impossible to predict what stocks will do in the short term and recommends investing only for the long run.
4.
What sorts of companies did Peter Lynch favor?
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Those in industries he understood. Lynch invested in those in industries he understood. Lynch firmly believes that you should invest only in what you know. He shunned industries he didn't understand, even if they presented great value or great possibilities. Notice this echoes Warren Buffett's "circle of competence" idea.
5.
What three fundamental criteria did Peter Lynch use to evaluate a stock?
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Profits, business model, and current stock price. Lynch looked for profitable companies with solid business models selling at good prices. He was willing to pay more for those companies than other managers might have paid, and he tolerated debt as long as the profits were there and the business model was right.