Tuesday, 3 October 2017

Peter Lynch and the blue chips

It's always good to learn something new from blog reading. Those scraps of information are like bread crumbs which can lead me to discover more interesting stuff about investing - to know what I don't know. As the saying goes, danger lies when you don't know what you don't know.

Stalwart - simi lai?

"Stalwart is a term popularized by legendary stock picker Peter Lynch to describe a large, well-established company that still offers long-term growth potential. "

"In addition to a strong balance sheet, one of Lynch’s key measures for a stalwart company is the P/E growth ratio (PEG), which is calculated by dividing the company’s price-to-earnings (PE) ratio by its earnings growth rate. Lynch determined that PEGs below 1.0 were an indication of an underpriced stock relative to its growth rate. He considered stocks with PEGs below 0.5 to be a real bargain. For dividend-paying companies, he factored in the dividend yield to arrive at a yield-adjusted PEG ratio. Wal-Mart is often cited as an example of Lynch’s stalwart methodology."

[Source: Stalwart http://www.investopedia.com/terms/s/stalwart.asp#ixzz4uQvSnJIq]

哦,P/E还可以这样子用的喔。

I interpret it as - stalwarts are generally companies with strong moat / competitive edge. Their offerings and business models are either difficult to replicate or monopolizing. As such, it is difficult for newer, smaller cap companies to gain market share from them. 

However with the rapidly evolving technology and the rise of new business models, it is no surprise that some of these stalwarts may find their offerings getting obsolete if they are unable to keep up with change. Examples were Nokia and Fujifilm.

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Just a fun simulation here based on an old blog post of mine last year - http://rainbowcoin.blogspot.sg/2016/03/4d-market-rules.html

STI was at 2837. Now STI is at 3246. (Difference +409)

If I were to buy all the resilient blue chips (highlighted in yellow below) then in 2016, assuming almost equal amount invested per stock, how would my portfolio fare now?


Time travel to Oct 2017 and
the results are...

Shares Price then $ vested Price now $ vested Gain/loss
Ascendas REIT 4100 2.44 10004 2.66 10906 902
Capitamall Trust 4600 2.17 9982 2 9200 -782
Jardine Cycle 300 39.55 11865 39.82 11946 81
SATS 2600 3.91 10166 4.66 12116 1950
SPH 2600 3.92 10192 2.71 7046 -3146
Thai Bev 13000 0.77 10010 0.9 11700 1690
Wilmar 3100 3.21 9951 3.2 9920 -31
TOTAL 72170 72834 664

Negligible capital gain. Becos one rock sunk the ship. Image result for defeated emoticon


Could have done better by buying the STI ETF!
(Those who bought the banks really hit home run. LOL)


Moral of the story

Do not buy simply based on the company's resilience in a down market. Do look at the company's earning prospect, forward price trend and overall sentiments.


How many of the blue chips are still stalwarts? It's for you to decipher.



*** Disclaimer: I have no vested interest in the above stocks.

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