RS Weekly Update - Peter Lynch, ATVI, WFC & HCSG
I love to read books about investing. From Warren Buffett to Peter Lynch and everywhere in between; each has their own way of looking at things. And for the most part they seem pretty open to sharing their wisdom.
I consider Peter Lynch’s One Up On Wall Street and Beating The Street must-reads. Not only are they educational, but they’re entertaining as well. Lynch just has a great way of relating to normal everyday things. And that’s part of his process; observing those everyday things that we encounter and finding the opportunity. In Beating The Street, Lynch lists 25 “Golden Rules” that we as investors should learn and follow. While I won’t list off all 25 (Read the book!) here are a few that stick out:
First, your edge as an investor is what you already know, so invest in what you know. Don’t invest in things you don’t understand; there’s no reason to. Sticking with things you know and understand keeps it interesting and improves your odds of finding winning investments.
Another is to be patient. The only way you can get those 10- and 20-baggers is by “letting your winners run.” It sure is easy to rationalize selling a stock that has done really well, but if your investment thesis is still sound, selling early can leave a lot on the table. David Gardner is a great example of an investor who is not afraid to let his winners run. Remember time is on our side; it is one of our biggest advantages as individual investors. We don’t have to answer to anyone but ourselves, so we can afford to hang in there and wait. It’s part of what makes us Foolish.
And finally, behind every stock is a company, so learn about what it does and how it makes money. It is easy to look at a stock as a piece of paper. But you truly have to view yourself as a part-owner of the business. If you can do that, then learning about the company is fun!
These are just a few of the timeless gems from Lynch that stay with me today. I keep his books on my desk here and refer back to them often. If you haven’t given them a read, I highly recommend that you do. I guarantee you’ll be a better investor for it.
Jason Moser (TMFJMo)
Shares are still right where we bought in on our favorite video game publisher, but this is no surprise. The apathy that surrounds Activision Blizzard (Nasdaq: ATVI) is what gives us the chance to buy into a solid company at a good price. Black Ops, had a stellar first week as it generated $650 million in revenue in its first five days on sale. This of course set a new record, but with World of Warcraft: Cataclysm scheduled for release on December 10, that record may not hold up for very long. I am convinced that the market’s short term pessimism on the future of gaming in general is what keeps this company’s stock down. You can check out my latest take here; the way I see it, this party is just getting started.Wells Fargo
Every day banks are making the news with things like mortgage buybacks and dividend increases. Now it is Stress Test II: The Sequel. While a lot of banks are hammering the Fed to let them raise their dividends the Fed is requiring them to prove that they have the capital in place to meet new guidelines and handle any future bombshells. Wells Fargo (NYSE: WFC) was one of the ten banks required to build additional capital after the first stress test. Since then they have grown their Tier 1 common equity to acceptable levels, net charge-offs are decreasing, and loan quality in general is improving. The Oracle of Omaha himself recently disclosed that he has increased his Wells position by 5%. We’ll have to wait for the outcome of the next stress test to see if dividends will be rising anytime soon, but either way I could see Wells holding a long-term spot in my motley portfolio.
Jason owns shares of Wells FargoHealthcare Services Group
A couple of days ago, one of my colleagues Roger Friedman took some time to ask me about a few stocks that I have on my watchlist. One that I have been researching a bit over the past couple of months is Healthcare Services Group (Nasdaq: HCSG). This small cap provides housekeeping and laundry/linen services, facilities maintenance and dietary services to retirement homes, elderly care centers and hospitals. The value proposition is that through scale and operation they save facilities time and money while providing a valuable service at a specialized level. This is a very fragmented market and many facilities provide these services themselves which can be onerous and expensive, especially for the smaller, individually-run operations. Insiders own about 5.5% of the shares outstanding and although they are indirectly exposed to Medicare and Medicaid funding shortfalls, I see this as a business still with a lot of room left to run.
Straight from the Onion
If ever you needed a reason to not ride the bus…