Peter Lynch: Everything You Need to Know About Investing in One Video

So I've always said if you spend 13 minutes a year on economics, you've wasted 10 minutes, and all you need to know about the stock market is it goes up, and it goes down, and it goes down a lot. And that's all you need to know. Again, it'd be terrific to know what's gonna happen to the economy, but I deal with facts. If inventories are going up, if copper prices are going down, if room occupancy is going the wrong way, people building too many hotels, I look at freight car loadings, my own railroad stocks. I deal with facts. I don't deal with what people tell me something's going to happen in the future; you might as well call the psychic hotline for that stuff.

Thank you. Does everybody have this list? Can everybody hear me? Can you hear what I'm saying? There's a lot of microphones here. This is what I'm going to cover today. It should be on your desk. These are the key points that I've been using for 25 years. I think they're true then, I think they're true today, and I think they'll be true in 25 years. I think that's what successful investing is all about.

The first point is know what you own. I can't believe how many people own stocks and they couldn't describe to an eleven-year-old in two minutes or less why they own this thing or what it is they own. If you actually pin them down, and you put a whip to them, they'd say, "the sucker's going up." That's the only reason they have for one.

This is the normal kind of company that people buy: this is a very simple story. I own a lot of companies like this. They make a relatively mundane product. It's a one megabit SRAM CMOS bipolar risk floating point data I/O array processor with optimizing compiler, 16-bit dual-port memory, Unix operating system, four Whetstone mega flop, poly silicon emitter with a high bandwidth—that's important—six gigahertz double metallization communication protocol, asynchronous backward compatibility peripheral bus architecture, four wave interleaved memory, token ring interchangeable backplane, and they do it in 15 nanoseconds of capability. Now if you want a piece of [ __ ] like that, you will never make money. Never.

Somebody came with more Whetstones, less Whetstones, big mega flop. And what do you do if this thing goes from 12 to 9? Do you buy more? Do you walk around the block? I mean, you call your friends. I mean, what the hell do you do or something like that? People buy this stuff. I mean, I buy stuff like Dunkin' Donuts and Stop and Shop and CVS and made money in all those. And Sallie Mae was just here, you know, right before me. I mean, there's a stock I bought that did a great name: student loan marketing. Who would ever buy anything like that? It was a great name. If you heard the story, I think 100 people heard the start. In fact, I had the internet last night with Al Lord and Ned Fox and Paul Kerry. We were on that roadshow in 1983. I think 100 people looked at Sallie Mae; they would have bought it, but 100 people wouldn't look at it. He said, "Imagine loaning money to students, not doing anything with students." And it was a great story. It was simple, and no one looked at it.

So that's the kind of stocks I like to buy, but I'm telling you people don't do this. I'm talking sophisticated people, unsophisticated people—they don't know what the company is, what's the story. And it's very important to know it because it doesn't always work, and you have to keep posted.

Now here's a big point: remember this one—it's futile to predict the economy, interest rates, and the stock market. I mean, people keep trying to do this. This would be useful. I would love to know when we're going to have a recession. I'd love to know when interest rates can go up or down. I'd love to know when the stock market's going up. That would be helpful. I would like to get next year's Wall Street Journal. Unfortunately, you don't get it.

I remember in 1982, we had a lot of people's room around for 82. We had a 20 prime rate, 15 long governments, double-digit unemployment, double-digit inflation. I don't remember anybody telling me about that. In 1980, I remember everybody telling me about that. In 1981, but in 83, I remember they said, "Well, the economy's bounced back." And then recession! In 85, they said, "Whatever recession!" In 86, maybe seven something happened in October 87. I figured out what happened: the Celtics lost seven in a row. Something bad in 87. They said for sure every recession! In 88, and they said in 89 for sure every recession! And then 90, we're supposed to have the so-called soft landing, which we never had.

So I've always said if you spend 13 minutes a year on economics, you've wasted 10 minutes. And all you need to know about the stock market is it goes up, and it goes down, and it goes down a lot. And that's all you need to know. Again, it'd be terrific to know what's going to happen to the economy, but I deal with facts. If inventories are going up, if copper prices are going down, if room occupancy is going the wrong way, people building too many hotels, I look at freight car loadings, my own railroad stocks. I deal with facts; I don't deal with what people tell me something's gonna happen in the future. You might as well call the psychic hotline for that stuff.

That's how to get better average. You've got plenty of time. This is true. Sallie Mae has through Dunkin' Donuts, is through Stop and Shop. People are so insistent on that way, too; I have to fight it. They have to buy a stock. Let's say... let's see... it's now... see, it's now 5:01. I haven't found a stock yet today. You know, I got to find the stock before sunset. You know, you can buy Walmart 10 years after Walmart went public. Let's say you're a very careful investor; you waited. You said, "I don't know if this company can make it." You waited for Walmart to roll it out. You could buy Walmart 10 years after they went public and made 30 times your money. 30 times your money, 10 years after they went public.

They were only in 15 percent of the United States, one-five. They unsaturated the one-five. You could say, "Well, why can't they go to 17? Why can't they go to 19?" I mean, why don't I take a leap of faith here? Why can't they go to 26? All they did for the next three decades was roll it out. You could buy Walmart. If the day they went public, your body would make 500 times your money. If you waited 10 years in Walmart, you made 30 times money. You got plenty of time in this business.

Now what I'd like to talk about is what I call the 10 most dangerous things people say about stocks. Here's a good one: If it's gone down this much already, it can't go any lower. Iron Polaroid went from 140 to about 107, and people said if you ever get Polaroid under 100, you got to buy it. You just back up the truck; buy the stock tonight. It's not going to get... fall 103; you've got 112, 105. They said it gets under 100. Bipolar Polaroid broke a hundred; people started buying it, and within nine months the stock was 18.

I saw sending Avon products. Just saying, you know, it's gone down this far. You know how much lower? I mean, it's crazy, but you know it can keep going. In fact, I tried this out: Kaiser Industries. I was a new analyst at Fidelity, and we were about to buy the biggest block ever at Kaiser Industries. The stock had gone from 29 to 17. We're about to buy the largest block ever in the history of the Americas exchange. We bought, you know, 10 or 15 million shares at 50 and three quarters. I said, "My God, the stock's gone from 29 to 17. How much lower can it go?" So you buy this enormous block at 50 and three quarters. So I called my mother and I said, "Mom, I guess Psycho Kaizen says it's ten."

So about three months later, my mother said, "You ought to buy this; it's gone from 29 to 10. How much lower can it go?" Well, it went to nine. It went to eight. It went to seven. It went to six, five, four. Now fortunately, this happened very rapidly, or I'd be working at the Stop and Shop, bagging behind the lines instead of Fidelity. So fortunately this was compressed in only about six months. So I had to go to finance and say I was a little bit early on this at 15 and three quarters. But it, uh, we call this premature in the business.

Had a correction, which, you know, is a euphemism for losing a lot of money rapidly. So I said, "Let's check this again." The stocks for they own forty-five percent of Kaiser Aluminum, they own fifty-nine percent of Kaiser Steel, they own thirty-eight percent of Kaiser Cement, they own all of Kaiser Electronics, all the Kaiser Broadcasting, which had seven TV sets. They own Jeep, the Kaiser fiberglass said about Kaiser, saying the gravel a bunch of other Kaisers, and then no debt.

Now in this room, because I know Freeman Billions is very interested in financial stocks, no one's ever gone bankrupt without any debt. Now that would take a real... I think you have to get some kind of distinguished service award to do that. Yeah, but they had no debt. I said it's not going to go to zero. You know, I was wrong when I said it can't go below 15. So we hung on, and within three years they gave out the shares and Kaiser Steel and Aluminum, and they sold off all the businesses. You got about 55 a share. But if you didn't know the story and the stock went from 15 to 11, and you're just saying how much lower can it go when it went to 918, you would have gone.

So you can't just say it can't go any lower because I saw Taco Bell go from 14 to 1 in 1974, and they had no debt and making 60 cents a share. There's a corollary to that that's even more dangerous: if it's gone this high already, how can it possibly go lower...?

Sorry, higher. Philip Morris adjusted for splits sold for 12 cents in 1951, and then it goes to 60 cents in 1961. So it goes up fivefold, and you say to yourself, how much—this has never sold for that—just for splits to say how much higher can this go? It's gone up fivefold! They missed the power of Marlboro. They missed the... There's 220 countries in the world. They missed the cash flow of the company. They missed everything! This stock was a hundred bagger after going up fivefold. But people sold it just saying how much higher can it go. "Can't go any higher."

They did the same at Home Depot. They did the same with Toys R Us. I did the same thing—Toys R Us—just saying it can't go any higher; it's gone this much already. That's very dangerous, and don't use that one. It's a very bad thing to do.

Eventually, they always come back. Here's another one that sucks. That's a technical stock market term that we just use only in the stock market. RCA just about got back to its 1929 price, was backed out by GM Manville. Never came back. International Harvester, even with its name changed and adjusted for splits, doesn't get all the way back yet. Western Union, double knits—remember those wonderful things? Floppy disks—they don't have to come back, but they say eventually they always come back.

Not true. Here's a great one: It's three dollars; how much can I lose? This is a great one. You see, I get... Get out. I don't have a computer, and I can't do high-level math, but just do this once. Let's say you buy your neighbor, buys ten thousand dollars of a stock at 50. The stock's now three, and you put 25,000 in at three. If it goes to zero, who loses the most? A lot of people cannot answer this question, you know. I mean, if you put a billion in at three, you can lose a billion. You know, I mean, they blow taps in lots of companies every year. You just have—they can go to zero.

Here's a good one that helped me a lot: It's always darkest before the dawn. The business is terrible; it's awful. You ought to buy the group. This is not a good way of making money at the... Here's one you're probably talking about before lunch—freight car deliveries. In 1979, there were 96,000 freight cars deliver in the United States. Two years later, it fell to 45,000, the lowest in 23 years. It goes from 96,000 to 45,000. People say business is awful; it's horrible, pathetic. Then it falls to 25,000. They say just load up!

There's about 15 opportunities to lose money. There's about 15 suppliers of freight cars, 15 manufacturers. Business was awful. Well, last year we shipped 7,000 freight cars in the United States. The business just continued to be miserable, and I'll give you one that's even there's an even greater opportunity to lose money on—energy services industry. This we all had a great opportunity to get our heads handed to us in 1982. There were 11,000 of those oil rigs drilling left, you know, drilling those holes all over Oklahoma and Texas and Colorado. We used to have to recount every week, and the recount fell from 11,000 in '82 to 6,083, then fell a little bit lower in '84.

There's hundreds and hundreds of companies here—companies that made the muds and did the down-hole stuff, the fracturing companies, the well companies, all the measuring companies, the chambers, the bid companies. Lots of opportunities to lose money here. There's equal opportunity here for serious losses, and the people said, "Listen, the business is terrible; let's buy this group." Well, the recount was only a thousand three years ago. So it went from eleven thousand to six thousand, five thousand, then eight years later was under a thousand. The industry really started to turn about two years ago.

So just saying the business can't get worse—I was lucky enough in addition to the metals industry to start finally—I had the textile industry, which is a great group to follow because you follow companies like J.P. Stevens, which was founded in the 18th century, and West Point Pep Roll was founded in the 18th century. Burlingame is one of the new companies that was founded in 1904. These people have been through recessions, depressions, world wars. They've seen it all.

There's a great expression in the Texas industry: it's always darkest before pitch black. Now that's a good one to remember because this is terrible. It can get considerably terrible. You're terrible to the power of six. And I love those numbers. I fake-carded to lose. You ever watch—I love the show Jeopardy? I watch Jeopardy, and people come out; they will know those numbers. They'll know the numbers, and they'll know, you know what country, Box took his first vacation in, and they'll know Phil Rizzuto's batting average and what his wife's first name was. They'll know the stock symbols of Xerox before it was Haloid, or, you know, they know everything.

And you watch the show; you feel like an absolute idiot watching the show because they answer all these questions, but they're really smart. I almost... I’ve owned this stock before—King World, right after they show Wheel of Fortune. And what happens is they'll have this word up there, it'll be TH, and there's a T. It's like buy a bottle fish! I'll buy you, you know, to buy an I, and you know Vanna spins the wheel, and they buy the A, and you know you redeem by watching the Wheel of Fortune after feeling like an absolute jerk on the Jeopardy game.

And it's really smart. When I rebound to 10, I'll sell. Here's a great rule: somebody buys a stock at 10, and it falls to 6. They say, "If it gets back to 10, I'll sell." Now I think the math—four and six—I can handle this little math. I think that's about a sixty-six percent return. You gotta buy. If you think it's going back to ten, you gotta buy the hell out of the damn thing. But they think if it gets back to ten, I'll sell. Now what you ought to do is never put down a round number.

I think for the next 26 years, the stock's going to go between five and nine and a quarter. It'll never get to ten, so maybe put nine and eight or eight three-quarters. But just saying, "The stock if it gets back what I paid for it" is a very important rule. This is very—it's one of the key rules. The stock doesn't know you own it. Remember that. You could be a miserable person; you could have, you know, never helped anybody, never done anything right, had 67 spouses, never done anything right. If you owned Coca-Cola the last 50 years, it's gone up 300-fold. You'd be the greatest human in the world—help special Olympics, help the mentally challenged, help poor people, help AIDS people. If you own Bethlehem Steel, it's lower than it was 30 years ago. It's not your fault!

Don't take this personally, you know, but people treat stocks sometimes like grandchildren or a puppy. They think the stock knows who you are. You know, it's... you know, it doesn’t work that way. Let me worry, I own conservative stocks. I don't have to worry. I own conservative stocks. Irman, Con Ed fell 80, then tripled. Public Service Indiana went down 90. Gulf States Utilities, long on lighting—this is maybe an oxymoron with quality Texas banks that went to zero. We had quality New England banks that went to zero. These are companies that have been around for 150 years, 120 years.

Saying I own conservative stocks, I don't have to worry. I've seen a lot of people, they don't inherit a stock from somebody. They'll say, "You know, my mother said on her deathbed, don't sell the Long Island lighting." You always wonder, you know, is she going to heaven or hopefully where she's going—heaven, you know? They talk about a Lillie game or a vacation or a game of hearts they had. Or imagine talking on your deathbed about Long Island lighting. And he said, you know, but you get these stories all the time, and I think your mother would have noticed. She would have sold at 29. But she would have noticed that this little plant that was about 6 billion over budget, no one wanted it, and it wasn't working, and Long Island stopped growing. So maybe she would have turfed at 22 or got up at 18. She wouldn't let it go to four.

You know, so just because you inherit some stock and so-called conservative like Eastman Kodak fell 75, IBM fell 75, don't tell anybody you own a conservative stock. Companies are very dynamic; I don't buy that argument. Here's a very dangerous one: Look at all the money I've lost; I didn't buy it. People do this all the time. They say, "I didn't own Blockbuster; I didn't own Home Depot; I didn't own Toys R Us." Eric, it was very nice to say some nice things about when I came up here, and Manny has been nice to me.

One of my books listed on two pages in the 13 years of Magellan, I listed, I think, about 200 stocks A through L on the New York Stock Exchange. They went up tenfold or more that I didn't know. Well, I ran Magellan; I had owned lots of stocks. I listed 200 stocks, A to L, and I didn't know any of the shares that went up tenfold or more, and I was able to do okay with Magellan.

And people worry all the time about missing Microsoft, missing Western Digital, missing United Airlines. They spend all their time worrying about stocks they miss. You cannot lose money in a stock you don't own. That's a variable you important. The only way to lose money is buy a stock, have it go down, and sell it. That's the only way. And I swear that people, their spouse has to cut out the newspaper in the morning, cut out the seas, and the person will look at the AMs, "Oh my God, Microsoft's up three! I had... I was gonna buy a thousand shares of Microsoft. I lost 3,000 Microsoft last night while I was sleeping!"

You know, I was gonna buy 7,000 shares of National Semiconductor at ten. It's now seventeen. I just lost forty-nine thousand dollars on National Semiconductor. They do this all the time; they may have to cut holes in the block. Thank God Blockbuster finally went away because that was early in the alphabet. People would always be looking at how much they lost in Blockbuster. "I missed that one; I'll catch the next one." That usually does not work.

Toys R Us, there's a lot of copycats at Toys R Us. There's Trial World; there was Lionel. There's copycats from Home Depot buying the next something; usually, it doesn't work. It's very bad. It's like buying on dips. I think it's always better to buy from dips. I was that was a better rule than buy on dips. You may have to explain this to some other people.

This is another technical term they have to explain: after hours where the dip is at. I usually refer to as plural dips. I never heard dip. You know, he's a dip; she's a dip. Usually, only the plural tense for it's a… and it's a gender non-specific; it's usually plural is never used. The stock has gone up; I must be right. Stock has gone down; it must be wrong. I'm convinced that people do this all the time. They buy a stock at 10; they buy a little bit of it. It goes to 13 and they now say they don't know anything more about it than they knew when they bought 10.

They have no idea what this company does. It's gone 13; now they take a second mortgage in the house and buy the 13. The best thing that could happen for us stocks go up directly from 10 to 4 for these folks. You know, it's gonna go to four eventually, but it goes to 13 in the middle. They're convinced now they bought a hundred shares of 10, not only buy 20,000 and 13. And all the fact is the stock went from 10 to 13 is it went up; the average movement of a stock in the New York Stock Exchange this century between high and low has been 50 percent. The average stock in your sections, that means the stock start of the year 20, sometimes during the year sold 16, sometimes during the year sold at 24, might have finished a year at 21, my official year at 19.

The average range of a stock in the stock change is 50 in 12 months between high and low. So stocks go up and down a lot within a year and saying this stock is going up means you're right doesn't mean a damn thing. So don't buy off an Allen; that is not a good one.

Avoid long shots. These are the companies that we have this very technical term for this, called whisper stocks. Everybody whispers stocks; they're great. Call you up and they'll say, "Hi, Pierre, Caroline, how's Beth doing? He comes. Mary, have you played any golf?" And then I'll say, "I want to talk to you about International Blivet." And the next one of those, they'll get a shorter term in those places where they have Nordic Tracks, and they put them away, and they don't have to make big rocks into small rocks; they just watch movies and have Nordic Tracks. But they won't—they will not catch these people if they whisper on the phone, and these are always these long shots. You know, these are stocks that are going to grow hair and make your kid have better spelling, and your breasts can improve, and you won't have to iron your pants.

You know, it's one of those stocks; they always do everything for you, but they're missing. They don't have any sales yet, you know? That's the missing element of the story; the story is sensational. There's no prophecy of sales yet, but my God, if this works—if this works, it's going to be the next Xerox, you know? And it's going to help burn space and everything. It's a very, very good deal.

Now this is not a long shot; this is a no shot. You have to separate these out. I've tried 30 of these; I have never broken even on a long shot. Never. I've made 25, 30 times my money on some stocks I never thought about: Sallie Mae or MBIA or Fannie Mae or some of the banks or Stop and Shop. I made 20 tons of money, 30 times money; I had no idea. I thought the stocks were going north; I had no idea. You look back 10 years later, you say, "My God, I made a lot of money in this thing." But once I went into thinking I can make four times my money, I've never broken even.

So don't do the long shot, guys. They don't work. They simply don't work. And again, if a stock's three and it has huge potential, write down the story. Take the stock symbol. If it's going to 300, it's okay to buy it at 15. Check in later. Check it here later; see if it's still listed so you can still get a quote on it, see if they sell the orange yet. But if it's going, write the story down. Some of these work; I haven't heard yet, but maybe they will work, but it's worth tuning in six months later. Don't buy it then.

The importance of management. Management's the single most important thing in a company, but for an outsider to know great management versus good management, terrific management versus average management—tough to do. Tough to do because you only get an hour with people, sometimes a half an hour. And how do you know what decisions they didn't make? A lot of great companies have been made because the company didn’t make an acquisition; they didn't get rid of the division; they don't buy the end report; we didn't get rid of the tubing division. You know, you don't hear about that.

Somebody said made a brilliant decision: "We're gonna hold on to that thing; we're gonna fix it," and it's doing great now. They might be doing great because some management eight years ago did it right, or some did something right five years ago, and that person isn't there anymore, or they didn't make any acquisitions, or they expanded at the right time. So knowing what management—what they can add to—it's the single most important thing. Very hard to measure.

I've always said, I like to accompany any fool can run, and eventually one will. And you really want to do that when I bought Toys R Us, they had the formula right. Any four people in this room and me could have run Toys R Us. We wouldn't have done as well as they did; they're spectacular. But for the next 15 years with no competition, we had a great formula; we could have rolled with it. They probably would have done three times as good. They were the frosting on the cake, but they had to form the right; no competition. The department stores know what they're doing; there's no copycats and they were going to just roll for the next 25 years. Same with Circuit City.

So I want the story to be solid. If management can add anything on top of it, that's great. I want to buy the story. Assume management leaves the next day and they're replaced by the next generation; that's fine with me. If management can add something to it, that's great. I'm not going to buy it because people say they have great management, because you'll notice great management is always attached to stocks that have been up the last eight years. You ever notice that?

Because I looked at Reynolds Metals; I used to follow around Metals. The stock has had the same person run it for like 30 years. When this aluminum was tight, they say, "Reynolds Metals has great management." Aluminum going over surprises, these people are idiots. Then aluminum gets tight, they say, "These people are terrific!" I mean, it all has to do with the price of aluminum, and they keep rating the management by how the stock's doing.

It's very hard to measure management. It'd be wonderful to do if you could spend months with them, really see them in action, then you'd know, but you don't really get that chance. Be flexible. People have all these biases, all these prejudices; they want to buy high-growth industries. They won't buy financial companies; they won't buy savings and loans. They won't buy companies that start with a letter R. I mean, you know, there's all these rules; they all hurt you.

There are great stocks everywhere; there's stocks that are near bankruptcy, stocks in bankruptcies, stocks that are about to go into bankruptcy. There are companies on the new high list that are attractive; this comes from the new low list. They're all over the place; they're in growth industries, non-growth industries. Don't cut yourself off to one segment; people have way too many prejudices, too many biases.

And I always thought of it—I don't know women in the audience see this many times, but I always thought these buy lists at some institutions, we don't have this at Fidelity, they was biased. I think Kmart got on some of these companies buy this three years ago. With the Microsoft may get on it about 12 years from now, but they have these buy lists, and I always thought the buy list is—you buy a new shirt; you ever look in the pocket, you get inspected by six or inspected by eight? Do you ever see those numbers?

I mean, I always wondered about that. I always think of those buy lists at those institutions. So I see that inspected by six and inspected by eight. In fact, I'm absolutely—if somebody called me, I could do it anytime of day. Has anybody ever got a shirt inspected by one? I mean, do they retire these numbers? Do they have a meeting? I've never had a shirt inspected by one or by two. I think they must put the raise their numbers in a meeting up to the rafters, but I always think every time I get that number in the shirt, I think of these people working off a buy list of rapidly growing companies only. They have a unit growth rate of x or 6x or whatever numbers; it doesn't work.

Another thing about it is math and the kind of math you need to do this. I don't use a computer; I don't have a computer. I really was doing great math. I was—I remember 7 times 7 was 41, and 9 times 9 is 81, and you know, 12 times 12, I think it was 144, so it was some big number. I got that one down cold. I said, "This is great! I love this stuff!"

And the barge left St. Louis going at eight miles an hour, and the train left Pittsburgh. And this stuff is easy. I remember one day I think it was ninth grade; it was a grim day. Somebody introduced cosine that day. I mean, remember cosine? I mean, does anybody use cosine the last couple of years? I mean, yeah, let's have a show of hands. Some of you have used cosine the last six months, but I remember tangent and cotangent. Why would you want to know about tangent then? Remember the area under the curve? Remember that crazy your calculus area under the curve? I mean, what the hell would you want to measure area on the curve for?

You know, that is such garbage. You know, you don't need this for the stock market. If you can measure if you can add eight and eight and get fairly close to 16, that's all you need. You know, you say, "400 million in debt, no equity, no cash, losing money, forget it." You know, they're good! "300 million in cash, no debt, 200 million in net worth, they're losing 10 million a quarter, they'll be around." That's all you need.

That does not that hard. If you made through fifth grade math, you can handle this stuff. And I had a roommate in the army, and it's a story I always remember. He was talking about he went to this very good school in the south that I won't tell you the name of, but it's in Atlanta and rhymes with Roger Wreck. And they had this... my hero at the school was a very good football player.

This is my friend, my roommate telling me the story about this guy's a freshman at this great school. He'd go the line of scrimmage, and they changed the play; he couldn't figure this out. You know, I don't know if you realize how complicated football is. Half the plays are changed at the line of scrimmage! It's about 300 plays you go there think it's a run to the right. It turns out it’s a screen pass to the left, or it's a draw. It's all the blocking assignments have changed; all the passing's different.

You can do... you have to instantly think, "Oh new play, what do I do in this new play?" Just like that and do it. He could not handle these deals; just give me the ball, I'll tote it. And he'd go for about eight yards; he was really good at this. Now, this is not why he's my hero. The reason is my hero in a classroom about this size, his freshman year, he asked the question, "Does x always equal seven?"

Yeah, now he never made it to the second semester; he never made the varsity; he never made the NFL because he... that damn x; he never could figure out x, you know? Now I always thought if you win, they could resolve what the hell x people—you know, they could say give us 247 and a quarter, you know? They just finally resolved what x was; we could save all this time and do something useful, you know?

You don't need it in stock market. Okay, now we'll get to the important stuff. There's always something to worry about. This is the difference—this is what happens in the stock market—because see, everybody's got the brain power to dwell in stock market questions where they have the stomach for it. That's the key organ in the body. There's always something to worry about.

I grew up, I went to school, grew up with a kid in the 50s in the decade of the 50s. There's this big theory that the Depression was caused by stock market crash—totally wrong! Less than one percent of Americans owned stocks in 29. We had this big time recession; in fact, it was a depression. That's what it wasn't caused by the stock market. The economy went down, the federal reserve raised interest rates, and we had a big time depression. In fact, we had several depressions like that from 1850 on.

This is only one of about eight depressions since 1850. But people in the people thought the only reason we got the Depression was World War II, and they said, "Once we get back, next time every session, we're gonna have a depression, and it's gonna be a great depression." I never understood that adjective in front of depression. You might be crummy depression or bad depression, but it's a great depression; I never quite understood that one.

So people weren't buying stocks in the 50s because they thought another great depression is going to happen. In addition, people were very scared about nuclear warheads and nuclear war in the 50s. People building fallout shelters, stock mccann goods. There's something about going to Vermont, building a fall shelter, putting canned goods in it that you don't buy Minnesota mining or you don't buy some gold. I mean, just the syllogism just doesn't work out that you're buying lots of water, buying a shotgun, buying frozen food that will stay in the freezer with your own generator, and you're looking at growth stocks; doesn't seem to work out that way, you know?

And I remember in the 50s—I remember literally in classes I was in elementary school in the 50s, and they'd come in that have one of these air raid drills. Somebody yelled a hat and come, and they blow a whistle, and you get under your desk. Even then I says, I don't think this is going to do a lot of good, you know? But people were worried about a depression and nuclear war in the 50s, and then, I mean, the warheads, they couldn't do much damage back in the 50s.

Now one of these Stan countries, you know, these Kakistan and Zakistan, all these stand guys that have spun off, these free men building spin-offs from them. So I’ve been doing the... the... they didn't lead; it was a co-deal with somebody else, Goldman Sachs, and they did it. They're on the left side. The... every one of these little countries has enough warheads to blow the world up 88 times. Right? Who's built a fallout shelter? You know, we stopped worrying about it.

And there's always something to worry about. In the 50s, it was depression and nuclear war. The 50s was the best decade this century, let's stock market except for the 80s—only slightly better. These are only slightly better people. They expect a lot; we don't, okay? It wasn't a great decade; they just didn't expect much. We made it through, and the stock market was terrific.

Do you remember when oil went from four to forty? Remember that period? Oil went from four to forty and the experts said it was gonna go to 100, and all the countries of the world gonna go bankrupt and then the big banks go bankrupt, and we're gonna have a great depression, and the stock markets go down, and you're gonna wind up selling pencils and apples, you know?

Well, I’m going to oil one from four to four, and the experts said it was gonna go 100. Within two years, oil was at 14. The experts now, much higher paid at this point, are saying it's gonna go to four, and we're gonna have a depression, and people believe it again! I remember when the money supply was growing too fast; they said we’re gonna have a depression. That was going too slow; we're gonna have a depression. Remember the LDC debt? Remember the LDC debt?

All the banks, our banks are very smart; they lend all their net worth to Zimbabwe and Botswana and Bova Salon and all these countries, Chile, a lot of countries they can't pronounce. This is Chase Manhattan and Chemical; it manufactures Hanover. These countries weren't doing so well. Then they were called undeveloped countries or less developed countries. Now you have to call them emerging countries. It's not politically correct to call anybody an undeveloped country. It's like, I just found out the other day that the term for somebody that's overweight is laterally challenged. I was laterally challenged. Yeah, but these are LDC debts; they're all gonna go bankrupt.

And we're gonna have a depression. Then the Mid East was going on the world. Remember that one? The Middle East around the world; they weren't gonna buy our bonds, and the market crashing would have a depression. Then Japan was going lower—man, that one! Japan would have all the assets, and they weren't gonna buy our bonds, and we're gonna have a depression. Within three years, the Nikai Dao had gone from 40,000 to 16,000; the banking system's in trouble, and people said Japan was going to collapse and we're gonna have a depression.

I mean, people on their prayer list the other day eliminated crippled children, Mother Teresa, they're praying for Japan. I mean, you know it's a country with a 15 savings rate, you know, it's something bizarre. You know, commercial real estate, global warming. You know, and I think it's the older you get, the more nerves you get about these things. I think it's very valuable; I think while younger people are better investors is they're not worried. They haven't heard about all these crises, and they're with children. I think if you don't have any kids, you gotta rent some kids for the weekend, you know?

Get a seven-year-old and ask if he knows about the money supply; you know how fast it's grown. Ask him he knows about the shape of the yield curve. Is the wrong shape of the yield curve or that we're 48.3 months into the economic recovery? The average recovery is less than 52.3 banks, you know? Ask an eight-year-old if they know about that! Eight-year-olds have a very high expectation about the next 20 years. That's what you need to do.

The more you get away from eight-year-olds, the more you away from living roles, the more you start reading these crazy things you read over the weekend. In fact, from 1955 to 1985, the stock market went up a grand total of a thousand points, but it was down 800 on Mondays. So it's down... it was there for up 1800 on non-Mondays. It wasn't an accident. The stock market went down October the 1987 was a Monday. People over the weekend become economists and portfolio strategists, you know, and they’re bull if they take their lunch on the way to work, you know?

In fact, I knew very well that the market was going down in October of 1987. Dave Ellison remembers that my first vacation is going to take in six years, and we decided Ireland. And we stayed all these little cottages and played golf. I left on Thursday after the close, and the market was down 55 points, which wasn't a good start, but it was down 55 points.

We got over there, and because of the time zone, we were able to do—we want to do and get down to Cork and called in; the market was down about 118. I said to Carolyn, "If the market goes down on Monday, we'd better go back." But we're already here, so I'll stay for the weekend. So as you know, the market went down 508 on Monday. So I flew home because my funding gone for, I think, from 13 billion to 9 billion in two working days, and I... it was—the trend here is not positive. Like I could do something about it, you know?

But there's time when they call it; they wanted to say, "Well, what's doing right now?" Well, he's on the 10th hole; he's even part on the front nine, but you know he's in a trap right now. This could be a double bug; this could be a quadruple buggy right here. This could blow the entire front nine right here, you know? This is not what they want to hear, you know?

So I have no idea when the market's gonna go down and no idea when it's gonna go up; I'm totally shocked the market was 4,000 two and a half years ago. A while ago it's 8,000. I had no idea about this—very surprisingly—but I'll guarantee you the market will be a lot higher in 15 years. It'll be a lot higher in 25 years. What it's gonna do next one or two years, I don't have any idea. And if somebody in this room knows about it, they're not telling anybody, or they're not in this room, they're down in Palm Springs somewhere, you know? They've made a billion dollars, or if they know anything about interest rates because interest rates, you can be right five times in a row, and ten grand, you can have two billion. It's not that many people with two billion.

There's a lot of people predicting interest rates. Did you ever think about that one? Yeah, just five times right around ten grand, two billion. If you write sometimes a row, you can have the GNP of, you know, the United Kingdom, you know? It's a big number. So I don't worry about that. I know we've had 96 years in a century and the market's fallen 53 times. We've had 53 declines of 10 or more, so 53 declines in 96 years. Once every two years, we have a 10 decline of the 53 declines; 15, one-five, have been 25 or more.

So 15 in 96 years. But once every six years, the market falls 25 percent or more. That's what we call a bear market, you know? You know that, and it's going to happen. I don't care when it's gonna happen. I would love to know, obviously, it'd be very useful to know when it's gonna happen. It doesn't make any difference to me. Corbett drives me a lot higher eight years from now, a lot higher 16 years from now, a lot higher 30 years from now. That's what I deal with.

I'll be glad to answer your questions. It's great. I enjoyed it and want to start the questions.

They don't get the question; I'll read the calendar of offerings for free billings for the next month. Do you like international stocks? The question is—I always found I was better overseas than I was domestic because it's just less coverage. There's less people following these companies. So I think my big theory, and I think it's valid, if you look at 10 companies, you'll find one that's mispriced. You look at 20, you'll find two. You look at 100, you'll find 10. The person that turns over the most rocks wins the game. Overseas, the numbers are much better; it's just not that much coverage. So I think international stocks are definitely worth looking at.

When do you sell stocks? When you sell a stock is exactly the reason you buy. You write down the reason you bought it. I bought Subaru; Subaru was a distributor. They didn’t make any—they didn't actually make the cars; I think it was Fuji Heavy Industries made the cars. They distributed Subarus in the United States.

The stock was— I think the stock was 80. It was up from 6 to 80. I was a little late on this, but it didn't bother me, and I should never let that bother you. I didn't let it bother me, pay $40 a share in cash, did a very low price car, it was well liked; you did well for about five or six years in the slamming the stock from 80 to 320. The reason I sold Subaru, thank you—the reason I sold Subaru is Hyundai came in with low-cost car, Chrysler cut the price on the horizon, Ford came out with a low-price car at the end also. The super was no longer unique!

So if the car's not a buy, the stock's not a buy. That's what you're looking for; the reason you buy a stock, you keep it posted. If the reason changes, you go on to something else. What industries do you like best today and why? No idea. What's your favorite stock investment today? No idea.

What I'd rather tell you is there are lots of great stocks out there; you'll find them. I mean, I can recommend this stock and three months later go up or go down, but the great stocks that... Imagine if you worked—I mean, I worked the investment business; I missed Franklin; I missed Dreyfus. Frank went up 300; Dreyfus went up 50-fold. I didn't miss Dreyfus twice; it was my industry. When Dreyfus went in the crash, this is bizarre. Dreyfus went from 50 to 30, and the crash had felt 18. They had 17 share in cash and no debt; you're selling for one! I did that math very rapidly. And the week of the crash, there were like 90 percent the money market assets and bonds; their assets didn't go down the week of the crash.

The stock went from 50 to 18 with 17 a year in cash, so I paid attention to my own industry. Imagine being in the retailing industry. You would see Home Depot using Circuit City. You're just seeing all these great companies. These people buying biotechnology stuff—it's like crazy.

Do you believe the S&P 500 market is expensive? Yes. Which industries look the most attractive now? I would say if you look at the secondary stocks, we've had 3,000 companies come public the last four years; that's two a business day—3,000 companies. One third of the lower price and came public. Some of these are not great companies, but some are good companies; they have a glitch and no one cares about them.

So it's the secondary companies to me is the research list; that's where I'll be looking today. Let's see if you believe you should not own what you own. Please discuss the pros and cons of conservating your estimates versus diversification; okay. Very good question. I don't believe in diversification at all; I would own one stock if I could find one great stock. Diversification is a big mistake; I call it diversification.

But you buy this thing that might balance this other thing, and they both go down. I gotta get enough questions; I don't have questions, just come at your fifth annual conference here right now. I think we have enough coverage. Thank you very much. Well, that's pretty good.

So I don't believe in diversity at all; I would own one stock. But what I do believe in is if I find ten good stories, they're all equally attractive; I buy all ten, and I wait to see them unfold. It's like watching ten poker games, ten games of stud poker. You watch the cards turn over. Story three gets better; story six slips; story seven stays the same, but it goes up fifty percent. So you sell seven and buy two; that's all I do.

So if they're equally attractive, I buy all ten, then gradually some story says, "Oh my God, this is getting better and better and guess what; the stock just went down." So you keep watching 10 stories and magically, because of that rule of stocks going up and down a lot, then you load up.

Will you please please cease writing articles on mutual fund conversions? Oh, cease writing articles? I'm not going to cease writing articles on mutual conversions. It gets me mad that 99 people that have deposits in a thrift when it goes public, this thing comes to them, throws it in the trash.

I mean, they don't even look at it. I mean, it's sad; they don't even consider buying it because they're used to getting something from a savings loan. They gave a calendar and a free toaster, and they're not used to something that has, you know, 75 pages of black ink, and they have to put money up. So I'm still trying to educate the public to take a look when thrifts come public. If you believe what you should know, you should own, you should know.

Could you discuss the pros and cons of console? Oh, I did that one; that was a great one! I love my answer. What's your opinion of Wayne Heisinger's style? Great style. Okay, uh...yeah, statistics show women control most of the money in the US. Where are they at this moment? No, wait! No, there's some male... Is trying to find these rich women. Where are they at this lunch?

Okay, all the way with this! Okay, why are there some men trying to drill them? No, do... Looks like drill them. I can't believe it. Oh, tell them what to do! Okay? Uh, don't know. I’ve got three daughters; we specialize in that gender, and they're great, and they're bright as hell, and I think they're going to be terrific, so I don't know why there's so many men in this room. I think it'll even out over time; it takes a little while to catch up.

I remember when our business school and Wharton had no women in it; now they're 50, so it's working the right way. Barton Biggs says we are in a bear market rally; do you agree? I don't have the freaking idea what rallies; smelly. This is [ __ ] total.

Now, here's something Manny Freeman—listen, Manny Freeman said this morning they're in the fifth inning of the current world market. This is also [ __ ]. Okay, how many banks will there be in 10 years? Okay, we still have 7,500 deposit takers in the United States. In England, they have seven commercial banks; they have three building loan societies; they're totally ten depositors. In Canada, there are eight banks in the whole country. My town, we have over nine banks.

A little town of 18,000, we have nine banks. I thought we have 7,500 deposit takers. The United States become credit unions; they all have their own audit, their own advertising jingle, their own software systems, their own directors—in unbelievable ways. So how many banks will be in ten years? A lot less than there is now. How many thrifts will be a lot less? This industry is gonna have a serious consolidation; it's an unbelievable redundancy, waste, duplication, and it's gonna shrink.

And it works. Now, these stocks are up. They use paper, it doesn't cost anything to do it done. Okay, that's it; I appreciate it very much. Thank you!