STREET DOGS: Two ways investors can fake themselves out of big returns
From Peter Lynch: There are two ways investors can fake themselves out of the big returns that come from great growth companies
From Peter Lynch: There are two ways investors can fake themselves out of the big returns that come from great growth companies.The first is waiting to buy the stock when it looks cheap.Throughout its 27-year rise from a split-adjusted 1.6c to $23, Wal-Mart never looked cheap compared with the overall market.Its price-to-earnings ratio rarely dropped below 20, but Wal-Mart’s earnings were growing at 25% to 30% a year.A point to remember is that a p:e ratio of 20 is not too much to pay for a company that’s growing at 25%.Any business that can manage to keep up a 20% to 25% growth rate for 20 years will reward shareholders with a massive return even if the stock market overall is lower after 20 years.The other way investors miss out on great returns is by assuming a stock price can’t go much higher.Truth is, there is no arbitrary limit to how high a stock can go, and if the story is still good, the earnings will continue to improve and the fundamentals will not change."Can’t go much h...
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