The natural way to pick your stocks

Among all the legendary investors I like Peter Lynch the most, because his theories are simple.

Unlike other moneymaking masters who tout sophisticated principles and techniques, Lynch emphasizes the power of common knowledge and he chose many of his big winners the same way any individual investor could.

The Wall Street fund manager bought Taco Bell because he was impressed with their burrito on a trip. He bought Volvo because that's what his family and friends drove. He bought Hanes because his wife told him its pantyhose brand, L'eggs, was a favorite with women.

Rule No 1, Lynch says, is to stop listening to professionals, because any "normal person using the customary 3 percent of the brain can pick stocks just as well".

"When you try on the stockings or sip coffee, you are already doing fundamental analysis as professionals do," he says.

I was fascinated by these words and enthralled by the feeling that I could get a grip on my own financial future despite my still-to-be-proved investing skills, and that I could start anew after many losses. It was a sense of rebirth.

So I put Lynch's words into action. I sifted through Beijing Youth Daily regularly, not for the news, but for the advertisements it depends on. I started stockpiling the shares of Beijing Media after I saw a steady increase in the ad pages. Yet I have never made any money on them. The company's price nose-dived in 2005 after three of its managers were arrested on corruption charges.

I also bought cosmetic retailer Bonjour, because every time I went to Hong Kong I was tasked by female relatives and friends on the mainland with buying their beauty products, and because its wide array of products, often sold at discounts, draw big crowds to its stores. The stock price did rise after I became one of the company's shareholders in 2008, but not enough to make me rich - I sold my shares too early. Stunned and heartbroken, I watched as the stock skyrocketed 10-fold from its low over the next three years.

I missed a "tenbagger", a term Lynch uses to describe a stock that can make you 10 times your money.

Although I have yet to fully grasp how a management scandal could hurt investor confidence for so long and damage profits so much. I am proud of picking my second stock, which made me feel like a real investor as never before.

I cannot blame Lynch for my misfortunes. I think I am a better investor than before, thanks to what I learned from him. I have learned to stay cool when impulsively tempted to bet - "If you don't understand it, don't buy it", as he puts it.

And I have learned to see investing as an enjoyable daily practice, not a make-or-break gamble.

But the most important thing I have learned is to believe in only myself, not experts or "insiders", when it comes to not only stocks, but financial and economic activities at large.

So Lynch has already shown me the way, I just need to beat myself to win.

I don't read current issues of financial newspapers or magazines for investment inspiration any more. I still buy them for future reference though. A look back enables me to see how many lies have been told and taken as truths. Didn't China's major securities firms overwhelmingly foresee a bullish market at the start of the year? Many even set the benchmark Shanghai Composite Index above 4,000. It's the gullible public who has paid the price as the index is struggling to stay above 2,200, after a 20 percent dive so far this year.

I don't even need to rely on official figures to feel the pulse of the economy. Take inflation. I monitor the CPI through the changing price of my favorite Meiji ice cream, through one of my friends who recently rented out her two-room apartment off Beijing's 4th Ring Road at her highest expected price, or even through my taxi driver who complained that the cost of a boxed lunch meal has doubled in the past three years. All of which have brought me closer to the truth.

And the feeling is good.

The author is a senior writer with China Daily.

(China Daily 12/15/2011 page8)