'Buy What You Know' investing

Peter Lynch's 'Buy What You Know' Is Just The First Step

The context behind Lynch's "buy what you know" quote was this: he invited a seventh grade class over for a pizza lunch at his Fidelity executive suite and he gave the kids the option either to explain how a company made money in a few short sentences or to draw their business model with some crayons provided. The purpose for Lynch was to make investing seem much less esoteric than it really has to be. When a kid draws a picture of soft drinks manufactured by Coca-Cola (KO), Lynch was quick to explain that for every share you buy, you would receive $1.12 in annual dividends while the company earned $1.97 in total per share. Lynch pointed out that telling others about your investment in boring consumer staples like Coca-Cola and Pepsi (PEP) is not going to dazzle anyone with your brilliance, but it will make you reliable money, provided you do not overpay (both Coca-Cola and Pepsi have grown earnings by over 10% annually during the past twelve years).
Comment: Earlier this week on our return trip from Texas we stopped at the McDonalds in Medford MN. There I  chatted with a proud grandmother at her table with her 2 year old grand-daughter. We often stop at McDonalds when we travel because: the food is fast, the restaurants (and restrooms) are normally clean, and the food is high quality for fast food. I typically get the cheapest hamburger there ($ 1.19), a coke and a small fry (or medium and K and I split). I try to avoid investing in what I don't know and to invest in what I know. The "what I know" stocks: Kraft, General Mills, Pepsi, McDonalds, Coke, et cetera. I also invest in "what I know" stocks where I know people who work at the company: 3M, Seagate

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