Lesson #2- Avoid the Hot Stock

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Peter Lynch says that one should avoid the hot industry. This is usually the sector that's stocks shoot up %150 in a few months. The problem with these stocks, is that unless you are a professional you will not be able to time when the stock is going to collapse.
For Example, (a personal one) this past year I bought some shares of Suntech Power Hldgs (STP). I bought it at 34 bucks and it skyrocketed in under six months to 90 dollars. The next thing I knew, it was back down to $35. I t was definitely an exciting ride, but could have definately ended in a much worse way.
Lynch does not say to never invest in the hot industry. If there is a company in a the hot industry with great fundamentals a nice balance sheet and moderatly growing sales it could defenatly be a ten bagger. But remember, the ten baggers are the stocks that grow at a healthy 25% a year pace for a decade.
Please check in next week for lesson #3!

Lesson One- How Lynch finds his 10 Baggers

Lesson #1- How Peter finds his 10 baggers

Peter Lynch is famous for his great 10 bagger picks. Ever wondered how he did it? In his books he gives us the tips.
Lynch says that he used to take his girls shopping in the mall. When they were shopping he would be walking around and looking which stores were very busy. Talking to store workers about who had been coming to the stores and what they were buying. When he would get home, the stores that were doing the best were researched right away. He would check the P/E, the debt, and the price strength.
Check in next week for lesson #2!