"if only I knew where I was going to die, then I would never go there. "

This is a quip that Munger likes very much.

In fact, in investment, if we know where not to go and avoid it in advance, we can avoid a lot of unnecessary losses.

Duan Yongping, a well-known domestic value investor, also stressed "what not to do".

In the complicated investment world, knowing what not to do is more important than knowing what to do.

As an investor, what can we absolutely not do?

Investment master Peter Lynch also has his "not for list" in his investment. in his book, he specifically mentions several stocks that he avoids buying.

From today's perspective, if we take these types of companies mentioned by Peter Lynch out of context and think that they can never be bought, it is certainly wrong, but these types of companies given by Peter Lynch are indeed more likely to cause people to trample on thunder.

Moreover, Peter Lynch gives detailed cases to disassemble and analyze in the book, and there are deeper reasons behind what he avoids.

If you choose to avoid a company simply because it appears to fit these characteristics, you may also miss a moneymaking opportunity.

1 avoid the hottest stocks in the hottest industries

"if there is one stock I avoid buying, it must be the hottest stock in the hottest industry. "

This is what Peter Lynch first mentioned in his book.

Peter Lynch believes that this kind of stock has received the most widespread attention, and every investor will hear people talk about it on the bus or on the train on their way to and from work. Ordinary people often buy this kind of stock because of this strong social pressure.

Hot stocks rise so fast that they always rise far more than any valuation method can estimate, but because investors' wishful expectations support the rapid rise in share prices, while the substance of corporate fundamentals is as thin as the air, hot stocks fall as fast as they rise.

He reminds investors that if you don't sell wisely in time, you'll soon find that your paper profit turns into a loss.

Because when a hot stock falls, it will never go down slowly, nor will it stay for a period of time when it falls to the level you buy, allowing you to sell unscathed.

Peter Lynch also jokingly said, in fact, that you have bought this kind of stock shows that you are definitely not smart enough to sell as soon as possible.

In his book, he lists a variety of hot industries that have gone from boundless scenery to failure.

For example, when Peter Lynch grew up, carpet used to be a very popular industry.

At that time, someone invented a new tufting process, which greatly reduced the amount of fiber in the carpet, while others automated weaving, which reduced the price of the carpet from $28 to $4 per yard.

With a lot of demand, carpet sales have increased significantly, five or six major carpet manufacturers have made more money than they can spend, and the company continues to grow at an astonishing rate.

But the turning point came, and the prosperity of the industry soon attracted 200 new competitors to join the carpet industry, which used to have only five or six major manufacturers, and they fought a price war with each other for customers. the increasingly fierce competition makes it difficult for every manufacturer in the carpet industry to make a profit.

Peter Lynch said: "if you have a solid business idea that cannot be protected by patents or niches, then once you are successful, you have to guard against other people to follow suit, in the business world." imitation is the least lethal form of attack. "

And this is the moat often mentioned by many investors.

Another company cited by Peter Lynch is Brown, an oil service company. In those days, people would rush to buy oil stocks when they heard it was oil.

In 1981, the company's share price was as high as $50 a share, and many investors at the time, including the company's CEO, thought the stock would not fall.

But four years later, Brown's stock did fall from $50 to $1, and investors who predicted that the stock would rise and were long lost a lot of money.

Peter Lynch said: "if they can be indifferent to the hottest stocks in this hot industry, or at least do some in-depth research, it is possible to avoid such a tragic end." "

Brown is almost an empty shell, with only a bunch of useless rigs, some dubious oil and gas fields, a staggering amount of debt and a miserable balance sheet.

"if you have to make a living by investing in one of the hottest stocks in one hot industry after another, you will soon have to receive welfare to survive. "

This is Peter Lynch's teasing, but it also shows that he is vigilant about the hot companies in this hot industry.

But simply interpreting Peter Lynch's words as "what is hot is bad" may be taken out of context.

In the above two cases, the company's share price finally fell, not because they were "hot", but because there was "no moat" and "fundamentals could not support the stock price".... These factors.

It is not uncommon for hot industries to fall into the dust in the A-share market in the past two years.

No matter last year's consumption of medicine, or this year's new energy, all of them rose fiercely in the early days, and finally faced the pressure of pullback or even continuous decline.

Even if the long-term good track, the valuation is too high, it is a risk. High valuations often lead to disorderly expansion of the industry, resulting in lower ROE of the industry.

"Don't go to places with a large number of people." keep these old ideas in mind.

(2) avoid "pluralistic deterioration" companies

Peter Lynch criticized those random acquisitions and mergers very much.Companies trying to "diversify"。

In his view, these companies may have made good profits, but instead of using the money to buy back shares or raise dividends, they went on some stupid mergers and acquisitions.

This single-minded "diversified" company is looking for acquisitions with the following characteristics: the acquisition price is too overvalued, and the business is completely beyond people's understanding.

There is no doubt that these two points will maximize the company's losses after the acquisition, and eventually "diversification" will become "pluralistic deterioration".

From the investor's point of view, he said, the only two benefits of such stupid acquisitions and "pluralistic deterioration" are:

One is to hold the shares of the acquired company.

The second is to look for investment opportunities for troubled anti-transformation companies from those companies that have decided to slim down and restructure because of the plight of "pluralistic deterioration".

In the 1960s, the copying industry was popular in the United States, and Xerox controlled the entire copying industry from upstream to downstream.

But then Japan's Canon, IBM and Eastman Kodak all entered the photocopying industry, and Xerox was so frightened by the fierce competition that Xerox acquired companies that had nothing to do with photocopying to diversify.

But it had no idea how to run these acquired companies, and as a result, the share price fell 84% as a result of the failure of diversification.

As Peter Lynch said, even the best, brightest and capable managers are not as talented as people think, and even the most attractive managers of the company, it is impossible to turn all the "toads" they buy into "frog princes".

But the best and brightest companies believe that since they can manage their business, they must be able to manage any other business they acquire.

This is obviously a kind of overconfidence.

Of course, Peter Lynch also told you that it is not that all acquisitions are stupid. When the basic business of your own company is very bad, making acquisitions to find another way to develop is a very good strategy.

Most typically, if Buffett had stuck to the textile business, we wouldn't have heard the name of Warren Buffett and his Berkshire Hathaway.

Peter Lynch believes that the skill of a successful acquisition is that you must know how to choose the right target and be able to manage the acquired company successfully.

Looking back, if we look at today's market, it is true that many companies have been in trouble because of acquisitions in the past, and such negative cases are common.

But there are also some listed companies, through continuous mergers and acquisitions, to achieve the expansion of the company, the share price rises.

For example, the Chinese Education Holdings of Hong Kong stocks, a private education company in the past few years, has achieved the growth of the size of the company and the rise of the stock price by virtue of the acquisition of other institutions and the good management of them.

For example, ANTA Sports Products of sports shoes and clothing, the merger and acquisition of Italian high-end sports brand Fila in the early years was also very successful, expanding overseas brands and becoming a strong driving force for follow-up.

At that time, when ANTA Sports Products bought the trademark use right and franchise of FILA in China from Belle International for more than 300 million yuan, FILA was still a "declining aristocrat" with an annual loss of more than 30 million.

Under the operation of Anta, after FILA finally turned losses into profits in 2014, it got out of control, and finally helped ANTA Sports Products to achieve "ten times as many bulls in ten years".

Peter Lynch has already given a very clear explanation for these two seemingly contradictory results in his book.

He cited two examples of mergers and acquisitions in the same industry with very different endings.

Melville and Geneseo are both shoemakers, one is an example of "multivariate optimization" and the other is an example of "multivariate deterioration".

Melville, which used to be almost limited to making men's shoes for its family-owned "ThomMcAn" shoe store, has seen its sales grow as it starts renting shoe counters in other stores, most famously at the Kmart supermarket chain.

When the Kmart supermarket chain began to expand massively in 1962, Melville's profits quickly exploded.

After several years of experience in discount retail in footwear, the company has embarked on a series of acquisitions, and it has always been able to make the last acquisition quite successful before the next one.

In 1969 it acquired CVS, a pharmaceutical discount retail company, in 1976, Marshall's, a clothing discount retail chain, and Kay-Bee Toys in 1981. During this period, Melville reduced its shoe factory from 22 in 1965 to only one in 1982.

Step by step, Melville, which started as a shoe maker, has successfully transformed itself into a diversified retailer.

Unlike Melville, Geneseo went bankrupt in a series of crazy acquisitions.

Since 1956, it has acquired Bonwit Teller, Henri Bendel, Tiffany and Kress, and then it has been involved in securities consulting, men's and women's jewelry, knitting materials, textiles, denim, and various other forms of retail and wholesale, during which time it continues to focus on footwear.

In the 17 years from 1956 to 1973, Geneseo made a total of 150 acquisitions, which greatly increased the company's sales, so Geneseo looked very strong on paper, but the fundamentals of the company have deteriorated very much.

The difference in development strategy between Melville and Geneseo is ultimately reflected in the great difference in earnings and stock price performance between the two companies.

Both stocks fell sharply during the 1973-1974 bear market, but Melville's earnings grew steadily, causing the share price to rebound later, and by 1987, Melville shares had risen 30-fold. As for Geneseo, its financial situation continued to deteriorate after 1974, and its shares never rose back.

It is also a diversified acquisition, why the two companies have very different endings?

Peter Lynch's answer is "synergy".

The so-called synergy is to "combine the relevant business into a whole and make the whole work better than the parts".

In practice, sometimes acquisitions produce synergies, but sometimes they don't.

Melville is already in the hotel and hotel industry, so it makes sense to buy the Big Boy restaurant chain, as does the company that provides catering services to prisons and universities.

So, Peter Lynch said:"if a company really has to make acquisitions, I think it's best to acquire companies related to its main business. "

In spite of this, Peter Lynch is still very cautious about corporate acquisitions. "companies that have plenty of cash and feel strong have a strong trend in acquisitions: they bid too much and expect too much from the companies they buy," he said. And mismanaged after the acquisition. In contrast, I would prefer to see a strong stock buyback, because such a buyback would have the purest synergy with the stock price. "

As a result, he chose to stay away from diversified acquisitions.

3 beware of whispering stocks

When Peter Lynch was managing the Magellan fund, he often received a lot of phone calls recommending him to buy some sound companies.

After the recommendation, they often lower their voices and add:

"I want to tell you a big dark horse, this stock may be too small for the fund you manage, but it is definitely worth considering for your own stock account. The business prospect of this company is so attractive that it is likely to become a very profitable stock. "

Peter Lynch describes such stocks asHigh-risk stocks that will reap huge returns once the venture is successful, but have little chance of success.。

They are also called "whispering stocks" and often tell investors an explosive story.

For such whispering stocks, investors no longer have to bother to calculate financial indicators such as earnings per share, because such companies tend to have no earnings at all.

Investors also do not need to calculate the price-to-earnings ratio, because the company has no earnings, there is no price-to-earnings ratio.

But such companies have plenty of microscopes, doctors, high public expectations and large amounts of cash from stock offerings. "

While such companies tend to have good stories and look tempting, Peter Lynch says that if the company's prospects are very bright, there will still be a high return on reinvestment until next year or the year after next.

Why not stop investing for a while and buy its shares when the company has a better earnings record and is sure it will do well in the future?

After the company has proved its strength with its performance, it can still earn 10 times the return on the stock, and when you have doubts about the company's profit prospects, it is not too late to wait a while before making an investment decision.

That's why Peter Lynch doesn't advise investors to buy new shares.

"the psychological pressure on investors is to feel that they have to buy in the initial public offering or it will be too late to regret it, but this view is actually true in very few cases," he said. "

Although occasional applications for new shares can indeed give you amazing returns on the first day of listing, the initial public offerings of new companies are very risky because they have very limited room to rise in the future.

But Peter Lynch does not reject initial public offerings of companies that have been spun off from other companies.

He does make a lot of money in such companies, and Toys R us is one of them.

In his view, these companies are actually mature companies with quite a long operating history, and you can study their operating history like Ford or Coca-Cola Company.

In that case, there is no high risk.

4 companies touted as "next"

Another type of stock that Peter Lynch avoids buying is the company touted as the "next". The next IBM, the next McDonald's Corp, the next Intel Corp, or the next Walt Disney Company and the like.

"in fact, when people blow a stock as the next stock, it shows not only that the company as a later imitator has run out of stock, but that the model company that has been followed is going to be a thing of the past. "Peter Lynch said.

5 beware of supplier stocks that rely too much on key customers

"if a company sells 25% to 50% of its goods to the same customer, it shows that the company's operation is in a very unstable state. "

Peter Lynch is wary of stocks that rely too much on key customer suppliers.Because there is no way to know if one day, big customers will no longer need your products. That would be a disaster for the company to cancel the contract.

"if losing an important customer would be a devastating disaster for a supplier company, then I would be very cautious in deciding whether or not to buy the stock. "

In addition to the risk of canceling the contract, large customers also have a great negotiation advantage, which can force suppliers to reduce prices and offer other concessions, which will greatly reduce the profit margins of suppliers.

So Peter Lynch says buying shares in such supplier companies that rely too much on big customers is almost impossible to achieve great investment success.

6 beware of companies with fancy names

Interestingly, Peter Lynch also made an interesting point, which is to beware of companies with fancy names.

His reason is thatA good company's name is monotonous and at first will be heard away by investors, while a mediocre company with a gaudy name can attract investors to buy it and give them the wrong sense of security.

As long as there are words such as "advanced", "major" and "micro" in the company's name, or mysterious acronyms made up of initials, investors will fall in love at first sight.

Although this statement sounds interesting, when we return to the A-share market around us, there are not many people who hype the names of listed companies, and even share prices soar immediately after some companies change their names. It is jokingly called "change your name and change your luck".

On November 30 last year, a company called "Sanyangma" was listed on the Shenzhen Stock Exchange and was once "happy to mention" 17 trading boards.

And the name of the company has obviously attracted the attention of some investors.

I don't know if this can be counted as a company with a fancy name that investors fell in love with at first sight, as Peter Lynch said.

Whether it should be avoided or not, it depends on the specific company research.

In retrospect, the companies that Peter Lynch mentioned are often mentioned when it comes to investment.

Whether it is a hot company or a company touted as the "next", many investors will take the initiative to avoid it.

Of course, there is nothing absolute about investment, and from many of the examples cited above, we can see that in the end, it is necessary to make a specific analysis of the company.

But Peter Lynch's list of situations that need to be avoided is, in the vast majority of cases, more likely to step on thunder.

Then, for professional investors, of course, we can and must do more in-depth research, so that we ordinary investors can safely give the money to them.

But for ordinary investors with limited research ability, if you want to try to buy stocks yourself, these types of stocks given by Peter Lynch are really a good lightning protection list.

In fact, several books written by Peter Lynch in the past are aimed at ordinary investors, encouraging them to invest in areas they are good at understanding.

As far as we are concerned, we should first rule out what we absolutely can't do, and then think about what we should do.