Chapter 21 Summary and Analysis

A prudent investor should review his portfolio every six months and ask the following questions: 1) is the stock price still a bargain compared to its earnings? And 2) is the company doing anything to increase earnings?

Asking these two questions can lead to one of three conclusions: 1) the company's financial situation has improved and I should buy more, 2) the company's situation has worsened and I should sell or 3) the company's situation is unchanged and I can either leave the money there or put it into another company with better prospects. With this strategy in mind, Lynch re-examined the 21 picks he made for Barron's at the six-month point.

As a group, the 21 stocks did very well in an average market. Lynch read the quarterlies of the 21 companies. Some of his research led him to companies he liked better than the original 21. He recommended...