In One Up on Wall Street, Peter Lynch wrote the following:
“Recently I read that the price of an average stock fluctuates 50 percent in an average year. If that’s true, and apparently it’s been true throughout this century [the 20th, that is], then any share currently selling for $50 is likely to hit $60 and/or fall to $40 sometime in the next twelve months. In other words, the high for the year ($60) is 50 percent higher than the low ($40).”
That’s why the strategy works! I think Peter Lynch would be a fan of this strategy. By selecting growing companies whose overall trend is upward at lower valuations in their stock price fluctuation cycle we can take advantage of both the long term growth trend and the short term valuation fluctuation. By not having the mentality that we need to hold forever we can then reap the profits when the valuation gets on the high side. Rinse and repeat for life changing long term results.
I have learned it is relatively easy to identify the fast growing companies at reasonable valuations using the methods described here and also utilizing Kevin’s awesome spreadsheet. The “secret sauce” that Saul adds seems to be that he is able to identify which companies will continue to grow revenues into the future, and he isn’t afraid to take his profits and move on to the next one at the first sign of trouble.
For me, those are the difficult parts of this investing style that I am still working on. Following all the discussions on this board certainly helps.
Always learning and improving - 2020investor