Invest Like a Guru: How to Generate Higher Returns at Reduced Risk with Value Investing by Charlie Tian

CHAPTER 1
 The Gurus
 “Those who keep learning will keep rising in life.”
 —Charlie Munger
 The painful experience I had in the stock market during the dot-com bubble
 made me realize that I knew nothing about stocks. So, I started to learn. In the
 years that followed, I was reading everything I could find from some of the
 best investors. I read their books, their quarterly or annual shareholder letters,
 and any articles about them I could locate. I looked at their portfolios for
 investment ideas. And, in 2004, I started 
GuruFocus.com to share what I had
 learned. Then I learned even more, as many of the investors came to the
 website to share what they had learned.
 I discovered that investing can be learned. I discovered that there is no trick to
 becoming a better investor. You simply need to learn, learn from the best, and
 learn from mistakes—mistakes of others, but mostly your own. And you need
 to work really hard.
 The Gurus who had the most impact on me and my investing philosophy are
 Peter Lynch, Warren Buffett, Donald Yacktman, and Howard Marks. Lynch,
 Buffett, and Yacktman taught me how to think about business, companies, and
 their stocks. Marks made a great impression on me regarding how to think
 about market cycles and risks. What follows in this chapter are the important
 points that I gleaned from these Gurus.
 Peter Lynch
 Peter Lynch is the Guru from whom I learned the most about stock picking.
 The legendary mutual fund manager of the 1980s at Fidelity invested in
 thousands of companies and generated an annualized average return of 29
 percent a year for 13 years. His bestselling books, Beating the Street
 Up on Wall Street, and One are the first books I read, and they helped me build the
 foundation for my investing knowledge. I read these books over and over and
still learn something from them. I will use some of Lynch's quotes to explain
 the key factors in his investing.
 “Earnings, Earnings, Earnings”
 A company's earnings and its stock price relative to earnings are by far the
 most important factors in deciding if the stock is a good investment. Though
 stock prices can be affected by daily headlines about the Federal Reserve, the
 unemployment rate, the weekly jobs report, or what's going on in Europe,
 over the long term, the noise from the news is canceled out. As Lynch wrote:
 People may wonder what the Japanese are doing and what the Koreans
 are doing, but ultimately the earnings will decide the fate of a stock.
 People may bet the hourly wiggles in the market, but it's the earnings that
 waggle the wiggles, long-term.
 Lynch places all companies in six categories:
 1. Fast growers
 2. The stalwarts
 3. Slow growers
 4. Cyclicals
 5. Turnarounds
 6. Asset plays
 Excluding the last category, asset plays, the companies are categorized based
 on what their earnings do. A fast grower can grow its earnings at above 20
 percent a year. The stalwarts can grow at above 10 percent a year. The slow
 grower grows its earnings at single digits a year. Cyclicals are obviously the
 companies that have cyclical earnings. Turnarounds are those that have just
 stopped losing money and have started to generate earnings.
 To Lynch, a company's earnings, earnings growth, and the earnings related to
 valuation ratios are the first things to look at before you consider a company
 further, unless you know it is an asset play. You can find all this information
 in a company's income statement. After I learned this, I went back to check

Invest Like a Guru: How to Generate Higher Returns at Reduced Risk with Value Investing by Charlie Tian