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An Investing Master’s Tip to Finding the Best Shares in the Market

Peter Lynch was the head of the US-based Fidelity Magellan fund in 1977, where he managed to deliver 29% annualized returns for his clients over 13 years. To put this into perspective, every $1,000 invested into his fund would have turned into $27,200 over his 13 year tenure.

In his bestselling book Beating the Street, Mr. Lynch listed down “25 Golden Rules for Investing.” One of them, Golden Rule No. 20, went like this:

“If you study 10 companies, you’ll find 1 for which the story is better than expected. If you study 50, you’ll find 5. There are always pleasant surprises to be found in the stock market – companies whose achievements are being overlooked on Wall Street.”

Turning over more stones

For his fund, Lynch preferred to “look under more stones” in order to find best companies out there. He would do that that again and again, going through and accumulating more than 1,000 stock positions over the lifetime of this fund.

As individual investors, we don’t have to go through as many companies as Lynch (note: the number of listed companies in SGX is 770 as of the end of October anyway, so investing in SGX-listed companies won’t yield you that many positions). However, the investing master’s general idea still has some merit. I believe that this approach can help an investor get better at comparing companies, and ultimately, become more knowledgeable within industries and across different industries. All things considered, this in turn could help the individual investor find the best company of the bunch.

Closer to home, if an individual investor is interested in the utility nature of the telecommunications industry, he or she may discover a better overall industry context from studying the Singapore-based trio of Starhub Ltd. (SGX: CC3), M1 Ltd. (SGX: B2F) and Singapore Telecommunications Limited (SGX: Z74). The latest earnings report for Starhub and M1 are located here and here.

By comparing Starhub and M1’s earnings report, we can see that both companies have gained thousands of subscribers for its broadband services in the past quarter. However, at the same time, both companies also collected less dollars per user for the service. This observation hints towards a competitive price environment.

The next clue comes from the churn rate (rate of customers leaving) of around 1% for both Starhub and M1. The low rate of customers leaving the broadband services may be the reason why the competing duo is eager lower prices to secure subscribers under its own umbrella. The churn data suggests that once the customers are secured, they are unlikely to depart from their chosen services.

Foolish take away

Comparisons across the same industry can help the Foolish investor to gain insight into the industry dynamics, and gain awareness of specific industry trends. This is one benefit from “looking under more stones” to find the best of the bunch. If Foolish investors can do that often enough, we may soon find the best company that we were seeking; whether it was hidden away, or just right under own noses. Or, in the case of telecommunication, right in our own pockets.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.