📖Peter Lynch
Prices Follow Earnings
Long-term stock prices track business earnings, not sentiment.
People who succeed in the stock market also accept periodic losses and setbacks. Losses and setbacks are key to eventually finding the big winners. Stock prices follow earnings.
🏠 Everyday Analogy
📖 Core Interpretation
In Prices Follow Earnings, Peter Lynch focuses on the gap between price and value. Returns come from paying less than what a business is worth, not from guessing short-term market moves.
💎 Key Insight：Focus on earnings growth, not price movements.
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❓ Why It Matters
Ignoring valuation turns even good companies into poor investments. Overpaying compresses future returns and leaves little margin when assumptions are wrong.
🎯 How to Practice
Estimate intrinsic value with conservative assumptions, set clear buy ranges, and act only when price offers a meaningful discount with acceptable downside.
⚠️ Common Pitfalls
Confusing a low price with true cheapness
Using one metric without business context
Overly optimistic assumptions that erase margin of safety
📚 Case Studies
1
Suburban Propane hidden asset (1982)
Lynch bought Suburban Propane when it traded near the value of its liquidation-worthy storage tanks and real estate, while the market ignored these hard assets and focused only on sluggish earnings.
✨ Outcome：Stock re-rated as investors recognized underlying asset value, producing strong gains for Magellan.
2
Crown Cork & Seal land value (1981)
Crown Cork & Seal owned industrial real estate and plants in prime locations carried on the books at historic cost, far below market value, making the company an asset play despite modest packaging earnings.
✨ Outcome：Share price rose as asset values were appreciated, rewarding long-term holders.
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