In a comedic keynote speech in 1997, legendary investor Peter Lynch described the ten most dangerous things people say about stocks.
While the speech is from the late 90s and many of the businesses he referenced are no longer operational — like Blockbuster — his critiques remain applicable across the 25 years between his speech, and market sentiment today.
The speech is summarized below, along with some of the real-world examples he used to drive home arguments. Lynch made himself the brunt of the jokes to show the audience that even successful investors like himself were capable of making poor investing decisions.
1) It’s gone down this much already, the stock can’t go any lower.
Lynch used Polaroid as an example in this case. The stock went from $140 to $107, Lynch cited the buzz on the Street when people said, “if the stock ever goes below $100 just back up the truck and buy it.” Polaroid would soon break $100, and within nine months the stock was at $18.
2) If the stock has gone this high already, how can it get any higher?
Lynch countered his previous point by using Philip Morris as an example.
He pointed out that, after splits, shares were sold in 1951 for 12 cents. In 1961, it then increased to 60 cents. When the stock has increased fivefold, an investor would wonder, "How much higher can this go?" At some point, Philip Morris went up 100 times.
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3) Eventually, they always come back.
“They don’t have to come back,” he said. Stock prices do not have to rise to their previous highs. Lynch used Western Union and the once-prominent RCA as his examples.
4) It’s $3, how much can I lose?
Lynch compared this absurd quip to a math problem. Assume your neighbor invested $10,000 in shares of stock at $50 each. At the current share price of $3, you invested $25,000 in the stock. Who loses the most if the stock declines to zero? Lynch commented, "A lot of people can't answer this question."
5) It’s always darkest before it’s pitch black.
He provided this example; In 1979 there were 96,000 freight cars delivered in the U.S. Two years later 45,000 were delivered, the lowest in 23 years. Deliveries then fell to 25,000 and people used this as an excuse to load up on freight car stocks. In 1996, 7,000 freight cars were shipped.
6) When it rebounds, I’ll sell.
Lynch said, “say somebody buys a stock at $10 and it falls to $6, they might say when the stock gets back to $10 I’ll sell.” He offered a side note: "If you think it’s going back to $10, from $6, you ought to buy the hell out of the damn thing.”
7) What worry? I own conservative stocks.
Just because you’ve inherited stock or the company is old, don’t claim that it’s a conservative stock, he said.
8) Look at all the money I lost by not buying the stock.
“The only way to lose money is to buy a stock, have it go down, and then sell it.”
9) The stock has gone up, I must be right.
Lynch described this bad thinking: "People buy a stock at $10 and it goes to $13. They don’t know anything more about the stock now than when they bought it, and now they take a second mortgage on the house and buy it at $13 because, they think, I must be right."
10) Avoid long shots.
Lynch told the audience to buy good companies, saying “stocks that will make you grow hair, your kid have better spelling, and make it so you don’t have to iron your pants.”
