Categorizing Your Portfolio
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The document discusses Peter Lynch's six categories for classifying investment portfolios: slow growers, stalwarts, fast growers, cyclicals, turnarounds, and asset plays. Each category is explained with examples and characteristics, highlighting different growth potentials and investment risks. The author shares personal insights on how this classification has influenced their own investment strategy.
Categorizing Your Portfolio
- 1. Categorizing Your Portfolio By Jae Jun www.oldschoolvalue.com
- 2. What You Will Learn ● The 6 categories according to Lynch ● How to classify your picks ● Examples in each category
- 3. Foreword Peter Lynch’s book, One Up On Wall Street, refers to the 6 categories assigned to companies in his portfolio.
- 5. I had never thought about classifying my positions in terms of growth and return potential.
- 6. The Companies I Picked I have 1 stalwart, 3 fast growers, 3 turnarounds and 1 cyclical.
- 7. I always looked at the different industries that made up my portfolio
- 8. And it was refreshing to see it another way
- 9. Here are the 6 categories According to Lynch
- 10. 1. The Slow Growers
- 11. These are the large (although not always), saturated or aging companies that are not expected to grow any faster than your fingernails.
- 12. They generate more cash than they can spend
- 13. They generate more cash than they can spend I’m sure every wife dreams of a husband like this
- 14. Examples Electric utility and waste companies
- 15. Examples Electric utility and waste companies AW, NU & CPK.
- 16. Examples Even Coca Cola (KO) could be considered as a slow grower.
- 17. 2. The Stalwarts
- 18. Examples Not slow growers but not fast enough to give 100% gains within two years.
- 19. Examples Not slow growers but not fast enough to give 100% gains within two years. • Adobe, • Home Depot, and • American Express
- 20. They can provide 15% - 20% per year
- 21. Anything beyond those rough numbers is a bonus
- 22. They provide outstanding opportunities when it is cheap enough
- 23. These companies Are already established yet they still got growth potential
- 24. What are stalwarts good for • good protection during recessions and corrections
- 25. What are stalwarts good for • good protection during recessions and corrections • they are also one of the first to be sold when a new idea comes up
- 26. What are stalwarts good for • good protection during recessions and corrections • they are also one of the first to be sold when a new idea comes up
- 27. 3. The Fast Growers
- 28. Companies that grow aggressively, often have growing pains, yet provide the best opportunities for individual investors before Wall Street comes along.
- 30. Examples • Wal-Mart • Hansen Natural
- 31. Examples • Wal-Mart • Monster Energy Drink What’s the catch?
- 32. Growing quickly adds the risk of bankruptcy…
- 33. or the company may grow tired & out of ideas and turn into a slow grower.
- 34. 4. The Cyclicals
- 35. Up and down, up and down. Photo credit: xhowardlee / Foter / CC BY-NC-SA
- 36. Examples Fashion, oil, auto industries are a few examples of cyclical industries. Photo credit: Jaeger-Meister / Foter / CC BY
- 37. Lynch informs the reader that too many people label cyclicals incorrectly. Photo credit: Nick J Webb / Foter / CC BY
- 38. An example is Ford and GM. Photo credit: myhsu / Foter / CC BY-ND
- 39. Just because these are established “blue chip” companies, many people expect it to act like a JNJ.
- 41. A majority of what value investors would invest in. Photo credit: Olivia Alcock / Foter / CC BY
- 42. Depressed, beaten and oversold companies Photo credit: onohoku / Foter / CC BY
- 43. They can rebound to its intrinsic value and beyond very quickly Photo credit: onohoku / Foter / CC BY
- 44. once people realize that the company has been successful in turning itself around. Photo credit: HikingArtist.com / Foter / CC BY-ND
- 45. Photo credit: renaissancechambara / Foter / CC BY
- 46. Companies end up using all of their cash and they are either back to where they started or worse.
- 47. Many companies try to turn itself around
- 48. They diversify into other unrelated fields of business just for the sake of trying something.
- 49. BEWARE OF THESE COMPANIES
- 50. Photo credit: RichardAtUCT / Foter / CC BY-NC-SA
- 51. On the flip side
- 52. On the flip side Photo credit: euthman / Foter / CC BY-SA
- 53. Apple has transformed itself from a successful turnaround to a FAST GROWER.
- 54. 6. The Asset Plays
- 55. Asset play, what? Photo credit: Xurble / Foter / CC BY
- 56. An asset play is where the company owns something much more valuable than just its business. Photo credit: i-r-paulus / Foter / CC BY-SA
- 57. ● The company may own land where oil lies just beneath.
- 58. ● or huge real estate that has been depreciated in the books for so many years it doesn’t reflect the true value of the company, like Sears
- 59. ● It could also be a huge pile of cash sitting around, like Berkshire.
- 60. ● Telecommunication and media business are expensive and desired assets...
- 61. They can give growth potential, monopolies and can also be resold for millions of dollars. Photo credit: Emilie Ogez / Foter / CC BY-NC-ND
- 62. For asset plays to work out,
- 63. a great deal of PATIENCE is required before the market wakes up. Photo credit: bunchadogs & susan / Foter / CC BY-NC-ND
- 65. I’ve only assigned one category to one company but there are companies that could be a combination. Photo credit: StockMonkeys.com / Foter / CC BY
- 66. You could even go further and create your own categories.
- 67. Overall, I’m happy with how my portfolio falls into the criterias.
- 68. It’s a good reflection of my investing style and strategy.
- 69. So there is a brief outline of the 6 categories, but for additional topics in an entertaining and good read, you can read it for yourself by purchasing it here.
- 70. Jae Jun (jae.jun@oldschoolvalue.com) http://www.oldschoolvalue.com Old School Value improves your investment decisions and performs deep fundamental analysis and valuation for you. Just like a personal stock analyst.