Peter Lynch, the most celebrated and successful fund manager, identified 13 attributes of a great stock to buy in his book, “One Up on Wall Street”.

1) Dull names

The company should have a dull name. This is one of the weirdest criteria that Peter has, why does a name got to do with the stock? His point is that a boring name will gather little interest from analysts. It is not attractive or professional to recommend a stock with a stupid name to a rich clients. Hence, it is likely to be lower priced. Peter pays attention to stocks that have dull and ridiculous names and invest in them provided they fulfil the other criteria.

2) Dull business

It will be a bonus if the company runs a dull business too. The point is the business should be so simple that it is dull and boring. He quoted “Crown, Cork, and Seal” who manufacture cans and bottle caps as an example.

3) Unglamorous business

A business can be unglamorous and yet making increasing profits. The reason maybe that the business is something that no one wishes to compete in. Peter Lynch quoted 2 businesses fulfilling these characteristics, a grease removal company and a plastic cutlery company.

4) Spin offs

Based on history, numerous companies that were spin offs from their parent companies, became very profitable on their own. One of the main reason is that the parent company must be confident of the division before allowing it to gain independence. Strong balance sheets and good management must be in place as part of the consideration.

5) No institutional investment and no analyst coverage

Peter Lynch prefers stocks that institutions are not interested in. In fact, he loves stocks that were once-popular to the professionals, as they tend to bottom when Wall Street starts to lose interest in them. He is particularly not interested if a company is heavily covered or recommended by analysts. Quoting him, “When I talked to a company that tells me the last analyst showed up three years ago, I can hardly contain my enthusiasm.”

6) Rumored that Mafia is behind it

There are rumors or impressions that Mafia runs Italian restaurants, newstands dry cleaners, garbage business and casinos. Respectable investors were not interested to get “tainted” in these businesses.

7) Dealing with depressing things

Businesses that have to take care of the sad side of life, eg. death. This an area Wall Street will ignore even though it can be a profitable business.

 

 

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