The extraordinary track record of Peter Lynch … the market approach that made him 29.2% average annual returns … the power of “common knowledge” … an A.I. tool that offers common knowledge on steroids Before we begin today’s Digest, a quick note…
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If you need assistance, we’ll be happy to help when we re-open on Tuesday.
Here in the Digest, we’ll pick back up with you on Tuesday as well. Have a wonderful long weekend. Peter Lynch will forever have a place in the investor Hall of Fame From 1977 through 1990, while managing the Magellan Fund for Fidelity, Lynch achieved a staggering compound annual growth rate of 29.2%.
That’s a 28-bagger in about 13 years – enough to turn $100K into nearly $3 million.
One of Lynch’s most famous pieces of advice to investors was “invest in what you know.” In his New York Times bestseller “One Up on Wall Street” Lynch discussed this idea, referencing something he called “the power of common knowledge.”
Lynch described a firefighter from New England who noticed that a local Tam-brands plant (the predecessor to Tampax) was expanding at a furious rate. So, he invested $2,000, then sunk in an additional $2,000 per year for the next five years.
By the early 1970s, that meager seed investment had made this firefighter a millionaire.
Lynch has many other similar “common knowledge” stories tied to his own investment success. His stake in Dunkin Donuts came not because the company had, say, a fortress balance sheet, but because Lynch loved their coffee.
For Taco Bell, Lynch invested after trying and liking their burritos. For La Quinta Motor Inns, Lynch perked up when he heard a rival employee at Holiday Inn speak positively about the motel chain. ADVERTISEMENT Biden’s Replacement Named? Did democrats just name Biden’s replacement for 2024? Louis Navellier predicts this “shadow candidate” could upend the entire election. But the best example of investing based on “common knowledge” comes from Lynch’s investment in Hanes Brands thanks to his wife, Carolyn From Lynch in “One Up on Wall Street”: I knew the textile business from having traveled the country visiting textile plants, calculating profit margins, price/earnings ratios, and the esoterica of warps and woofs. But none of this information was as valuable as Carolyn’s.
I didn’t find [Hanes’ pantyhose product] L’eggs in my research, she found it by going to the grocery store.
Right there in the freestanding metal rack near the checkout counter was a new display of women’ panty hose, packed in colorful plastic eggs. The company, Hanes, was test-marketing L’eggs at several sites around the country, including suburban Boston.
When Hanes interviewed hundreds of women leaving the test supermarkets and asked them if they’d just bought panty hose, a high percentage answered yes. Yet most of them couldn’t recall the name of the brand. Hanes was ecstatic. If a product becomes a best-seller without brand-name recognition, imagine how it will sell once the brand is publicized.
Carolyn didn’t need to be a textile analyst to realize that L’eggs was a superior product. All she had to do was buy a pair and try them on. Lynch was so impressed based on his wife’s opinion that he did a deep dive into Hanes, then purchased the stock for his fund. It turned into a 6-bagger before Hanes was bought out by Sara Lee.
Back to Lynch: I’m convinced Hanes would have been a 50-bagger if it hadn’t been bought out. What’s the point here, and how does it relate to your portfolio? Lynch had one of the best investment track records of all time because he watched what was happening in the real world. He noticed when everyday people – including himself – loved a product.
He saw this love manifested in shopping behavior and personal commentary, then he connected the dots to the company’s growth prospects – and by extension – future stock price.
In other words, “common knowledge” tipped off Lynch about a company’s growth in a way that didn’t necessarily show up on a financial statement.
Today, you and I also have access to common knowledge, but consider our enormous advantage…
Back in the 1970s, Lynch was limited to his own brand awareness as well as that of the handful of people he interacted with. Today, thanks to the internet, we’re able to track and gauge real-world sentiment to a degree never before possible.
Think about how things might look today with Lynch’s L’eggs example…
Imagine having an awareness that millions of women have been discussing this L’eggs product. In their social media accounts, they’re tagging photos of themselves wearing L’eggs, mentioning how great the product is… they’re commenting about wearing them in online platforms… they’re having in-app conversations about wanting to purchase new L’eggs colors when they’re available…
For investors looking for a bead on companies poised for hypergrowth, wouldn’t this information be enormously valuable? Would it not be Lynch’s “invest in what you know/common knowledge” on steroids?
We think so.
The issue then becomes “is there an easy way to track all of this common knowledge and act upon it.”
Yes, and earlier this week, legendary investor Louis Navellier held a live event to discuss exactly how. ADVERTISEMENT A.I. can help you accurately predict earnings ahead of time Ever wonder what it feels like to be on the right side of those massive moves that happen when earnings are announced? A new A.I. breakthrough gives you the opportunity to essentially get a “sneak peek” at the earnings of more than 500 companies. Discover it now before it comes offline. Watch Here! The power of using “social signals” to give you an advantage over other investors On Tuesday, Louis sat down with Landon Swan. He’s the brains behind Derby City Insights, one of InvestorPlace’s corporate partners.
During this A.I. Earnings Predictor Summit, these experts discussed LikeFolio, an artificial intelligence tool Landon created alongside his brother Andy. They engineered it to track “social signals” that can provide valuable insights into a company’s popularity with consumers.
Here’s Louis with more detail: Andy and Landon have their own system – LikeFolio – that turns hundreds of millions of social data points into proprietary demand and sentiment metrics to tell them when a stock could be ready to lift off.
Understanding that the major drivers of a stock’s prices are earnings (or the anticipation of them) and developing advanced algorithms that can help us spot the opportunities earnings create is our shared secret to unlocking profits in the market. The tool creates a score, calculated from an ever-evolving equation, that uses the following inputs: - Consumer mentions growth and rate of change
- Consumer demand growth and rate of change
- Consumer sentiment and change over time
- Supporting macro trend growth and rate of change
- Custom company or brand-specific metrics and their growth or change over time
- Stock price performance as an indicator of investor expectations
I think of LikeFolio as a “buzz tracker.”
If a company has a hot product or service, there’s going to be significant buzz around it online. The louder the buzz, and the stronger the momentum of that buzz, the greater the likelihood that a company’s upcoming earnings will be stronger than expected.
Such a “surprise” earnings report can move a stock price, putting a nice chunk of change into the pocket the investor who had the benefit of the insight ahead of time. ADVERTISEMENT The #1 Stock for the AI Revolution (Not TSLA) According to Wall Street Legend – Louis Navellier – the AI tech boom has arrived, and it’s poised to create a new class of ultra-wealthy Americans. Click here to discover how to gain access to his #1 AI recommendation. Hint: It’s not TSLA or NVDA. Tying back to Peter Lynch, this A.I. tool is a fantastic way to implement Lynch’s “invest in what you know/common knowledge” advice If you missed the A.I. Earnings Predictor Summit, we have a free replay available for you which you can access by clicking here.
I’ll give Andy the final word: Earnings will separate the winners from the losers in 2024.
But it’s how you identify those companies – and how you trade their shares – that determines if you win or lose.
Because our social media machine gives us real-time insight into how and where consumers are spending their money, it’s possible for us to know ahead of time whether a stock is likely to go up or down on an earnings announcement.
To get the full story on our AI-powered strategy for “winning” in an uncertain market, whether stocks soar, crash – heck, even if they hardly move at all, click here. Have a good evening,
Jeff Remsburg | 
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