After writing the post on investing in the oil majors (if you can call it that – I’m genuinely sorry about reaching almost 6,100 words as I didn’t plan on making it so lengthy) – explaining how you’re being paid to absorb volatility over very long periods of time that other people don’t want on their balance sheets; that we could very well watch some of these business collapse another 30%, 40% or more, but that doesn’t particularly matter much to a long-term investor who thinks the shares are objectively cheap on an absolute value and possesses both the emotional fortitude and financial resources to hang on for decades – by sheer happenstance, I came across an interview from Louis Rukeyser’s old show. A then-38 year old Peter Lynch talked about how he learned the importance of not buying something simply because it went down in market price. He had been seduced by Standard Oil of Ohio, now part of BP, after it fell by 33%. He then watched it collapse further until it was down 67%. If you think it can’t go lower: It can.
Rukeyser: What would you tell them [average investors] not to do?
Lynch: There’s a common mistake, people buy stocks because they’ve fallen from price X to two thirds of X or half of X. On that basis alone, they’re buying the stock. That’s called bottom fishing the stock market. It’s very, very difficult. I had a rough go of it. Standard Oil of Ohio shares fell this year from 90 to 60 and I told everybody this stock is not going to go any lower. Then it went to 50. I said this it, no lower. As it went through 40, I said to people, this is it. Finally when it got down under 30, and people said what do you think of Standard Oil of Ohio? I said: “What does Standard Oil of Ohio do? I don’t know that company.” I absolutely backed away from it.
Rukeyser: You didn’t like to buy low.