Peter Lynch was an American investor and mutual fund manager (now retired) who managed the Magellan fund at Fidelity Investments from 1977 to 1990. During this time Lynch obliterated the market by producing more than double the returns of the S&P 500 (29% per year) making his fund one of the most successful in the world at the time. Assets under management increased from $18 million to $14 billion during this period.

Peter Lynch’s Philosophy

Lynch’s book ‘One up on Wall Street‘ is one of the best reads if you plan on investing in the stock market. Lynch’s philosophy was almost simplified into a few of his favourite phrases such as ‘invest in what you know’ and he stressed the importance of ‘local knowledge’. Lynch believed that the individual investor may have more knowledge of a particular sector or company than the hedge fund managers.

Lets take the example of a mother of a small child. The mother would shop for children’s food and would know the popular brands, the ones children like the most and all the main competitors. They would also know if any recent products on the market are good or bad. The mother in this example would have a significant advantage over the hedge fund manager when investing in this sector as she knows how consumers responds to these products first hand.

In Peters book he uses the example of Dunkin’ Donuts. He went into a store one day and enjoyed their coffee so decided to take a look at their financials and ended up investing in the company which resulted in one of his most successful stock picks.

Peter Lynch was also against market timing and coined the phrase ‘far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves’.

Lynch’s three core principles can be summed up by the following

  • Only buy what you understand
  • Never buy a stock if you can’t explain the business in simple terms to someone else
  • Invest in the long run as you can’t time the market

Philanthropy

In his most recent TV interviews Peter Lynch mentions he enjoys taking a step back from investing and prefers charity work so he can give his money to support good ideas that can grow. The Lynch foundation supports religious organisations, medical research, education and hospitals to name a few.

Takeaways

Peter Lynch was one of the best investors of his generation and his success didn’t come from studying macroeconomics or short term technical analysis but staying in his circle of competence and investing in what he knows for the long term.

The views expressed in this post are the authors and should not be construed as financial advice

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Author

David is an Engineer and Finance Writer educated to masters degree level with sound knowledge in investing, the stock market and personal finance. We hope the information provided on this site can help you achieve your financial goals.

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