Hello friends, in today’s, article we see chapter 11 of one up on wall street book. In chapter 11 you see what to do after founding a company and that company is good for investment but you have to ask more questions on it. That all are discussed in chapter 11 of one up on wall street book. Let’s begin,
The Two Minute Drill: One Up On Wall Street: Chapter 11
If you find the company and do the analysis of the last annual report and get the good result of the investment, then also you have to ask a question regarding the future plan of the company that Peter Lynch called as Next Step. (One Up On Wall Street: Chapter 11)
- Building the story: The story is about the activity of the company from the past to the future. In this story, you have to consider each and every problem and also the good news of the company. To build the story of the company.
- What the company is doing to bring prosperity: In company analysis, you have to also search for why the company is good and how this maintains the goodness of the company by checking what are a company doing to bring prosperity. If a company doing some plan the brings some value to the company in the form of prosperity. (One Up On Wall Street: Chapter 11)
- What has to happen for the company to succeed: See how the company has overcome the problem of the company and how it succeeds in that sector of the company. see also the which are the problem and what is the solution in the past situation. And also see which type of problem has come and how the company is ready to defeat the problem. See the past situation and concluded the what company does to succeed in the past situation. (One Up On Wall Street: Chapter 11)
- What pitfalls stand in the company’s path: For this question, you have to see the past annual report and also predict the future regarding the pitfalls that come into the company’s path.
So Peter Lynch gives each and every company category, which includes before, so let’s start step by step each category of the company. So you get the ideas of what to do after describing the company for a good return.
What to look for in this company category:
- Slow growers: So from this name you predict this company is growing slowly, so you are only in this company because you need the dividend return on investment. So you have to look to the growth in the earning as well as the growth in the dividend yield that are increase step by step and maximum from the previous dividend. So for this, you can see the history of dividends and also look in those times when there is the recession time and this time company gives the dividend to the shareholders. If the company you the dividend in worse time then that is the good investment, and you are benefited from that company.(One Up On Wall Street: Chapter 11)
- Cyclicals: In the cyclical category you have seen the company is three years in the business recession and recently business sides increases and company minimize the labor cost and also close those plant that is insufficient to work. So this is a good sign for the company in this category.
- Asset Plays: In this category, you have to ask yourself is that which value is more of those assets than the book value on the balance sheet and how much they are worth today. To find this and also check the how much dept on the company. If you get the good value of the assets in today’s time then check dept an invest in this company.(One Up On Wall Street: Chapter 11)
- Turnarounds: In this category, you have to see what is the company is doing in today’s condition and what is the plan of the company to improve the condition of the company. If the plan seems good then predict this plan is work or not, and the company is restructuring or not before doing diversifications. So asking this and you get a reasonable answer then invest in this company.
- Stalwarts: In this category, you have to see the P/E ratio of the company and ask yourself this ratio is reasonable or not, and what is the company doing to increase the growth of the company. so Peter Lynch gives an example of a coca-cola company. Company consumption is increasing or not and also see the how much present increase in other countries like Spain, Japan, India, etc. Then if the growth ratio is increased in other countries then this is a good sign of company to do investment. (One Up On Wall Street: Chapter 11)
- Fast growers: In this category, you have to see the company is doing fast growth continuously and which part or branch of the company grow very fast as compare to the other branches, and also see those areas which are not growing fast in the country. So the company is doing some good news to spread company and open the new outlet of company.
So asking this type of company you get the exact situation of the company and get the company’s whole information. so the author gives the above conclusion La Quinta Motels and Bildners in two examples let’s see them.
- La Quinta Motels: This company is providing the motel for people, and all in one like holidays motel and this are very much cheap as compared to the holiday motel because they don’t make the reception, wedding hall, conference room and also kitchen and restaurant neglected and they make them only for staying. That way the cost is minimum and construction costs also minimum for the la Quinta motel. (One Up On Wall Street: Chapter 11) The maximum room is 120 in this motel but in the Holiday motel, the maximum room is about 250. So rooms are minimum that’s why the motel room does not take the maximum land, and they are situated like business side, in the district, government office, and hospital near. The best thing is that The insurance company gives the dept to the company and they have a share in their motel. So it’s is a good sign, if La Quinta motel defaults any payment so the insurance company can’t sell the share of the motel and get money. so because they have the share in profit. So the insurance company gives some time to return the debt. (One Up On Wall Street: Chapter 11) La Quinta motel increases its profit by 50% each year and the stock price is double in number and also now has the potential of stock to get a good return. So motel business running good, So that why Peter Lynch stays in this motel and peter lynch impress with his service but one thing is not like peter is that insider sells the share of the company. this thing is a bad sign in peter lynch consideration. After now that that insider is trying to diversify their portfolio, so that why they sell the share, so after this peter Lynch buys this share, and it’s increased 15 baggers in return. So this is a good sign for investors.(One Up On Wall Street: Chapter 11)
- Bildners: This company is making the sandwich, the sandwich is very good in test and that why they are very famous in their cities, and also peter lynch go to eat that sandwich and they also like the most of there sandwich. and this company outlet is near to the peter lynch office. So its popularity is maximum than the other sandwich. so this company is thinking to expand its business in other cities by doing equity raise. So peter lynch excited and they like the sandwich also, so they make the investment in the IPO of Builders company. But company fail in 2, 3, and 4 outlets in other cities. (One Up On Wall Street: Chapter 11) So Peter Lynch said there are two reasons to fail builder company is that 1) They thinks builders is next to a famous company like Starbucks and 2) Peter Lynch forget to ask that is a good run in another city also, And they make mistake in the Bildners and they don’t wait for this and they make an investment in IPO’sSo peter lynch says wait for that time company is successful in other location also that time also has the potential in stock to get a good return. So this company is 15 bagger in reverse stock.
So from these two examples, you get the idea of what type of things you need while you doing an investment.
This is all about chapter 11 of One Up On Wall Street book.
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