In this article I take a look at some timeless investing advice from Peter Lynch. Lynch is an American investor who ran the Magellan Fund at Fidelity Investments between 1977 and 1990. He’s one of the most successful fund managers of all time averaging an annual return for Magellan of 29.2%.
At the time, this was the best performing mutual fund in the the world, increasing assets under management from $18 million to $14 billion during his years in charge.
Peter Lynch Investing Style
The best way to describe Lynch’s investing style is that it is part value investing, part growth investing, part common sense. He says he bases his investment decisions on facts only, not predictions.
He tries to find companies that give him the chance to make double, triple, or even 10 or 20 times his money (something Lynch refers to as a ‘ten bagger’).
Most importantly, he advises investors to only invest in what they know a lot about. By only investing in what you know, the individual investor can do better than the average Wall Street fund manager according to Lynch.
I came across an excellent video on YouTube which contains some nice quotes and advice. The video is from a talk Lynch gave to the National Press Club in 1994 but the wisdom contained within it is timeless.
Peter Lynch Video
I hope you got as much out of the video as I did. Following are some of the best quotes that I gathered from the talk:
Peter Lynch Quotes
“I think it is a tragedy in America that the small investor has been convinced that they don’t have a chance… I think the public can do extremely well in the stock market on their own.”
“The single most important thing to me is to know what you own.”
“If you can’t explain to a 10 year old in two minutes or less why you own a stock, then you shouldn’t own it.”
“I made 10 – 15 times my money in Dunkin Donuts. I can understand it.”
“In chess, an outstanding player will beat an average player 1000 times in a row. In poker, there’s a lot of uncertainty, a lot you don’t know… The stock market is much closer to poker than any other game.”
“No-one can predict the stock market. That is a total waste of time. No-one can predict interest rates.”
“There are economic facts and there are economic predictions. And economic predictions are a total waste.”
“I spend zero time thinking about what is going on in Washington. I just deal with facts.”
“I love volatility.”
“Once every two years the market falls 10%. Every six years the market’s going to have a 25% decline. That’s all you need to know.”
“[Ordinary] people have big edges.”
“When an industry goes from terrible to mediocre, the stock goes North. When it goes from Mediocre to good, the stock goes North. When it goes from good to terrific, the stock goes North.”
“It’s very hard to go bankrupt if you don’t have any debt.”
“You can’t get too attached to a stock.”
“There’s always something to worry about, you just have to forget about all of it. Own good companies or turnarounds. Study them and you’ll do well.”
“Corporate profits have gone up about 8% historically… They double about every 9 years… So the stock market ought to double about every 8 or 9 years.”
Overall, this is a great video that reveals the underlying principles of a true investing legend. Investing in what you know and looking at facts only are great tips that anyone can follow.
If there is a caveat, it’s that there is a danger in over-simplifying things. As Lynch said later on investing in ‘what you know’ should not rule out the importance of serious fundamental research.
The important thing is to only invest when you have an edge. Whether it is an informational edge, quantitative edge or something else. Only invest when you have the advantage.
Thank You For Reading
Joe Marwood is an independent trader and the founder of Decoding Markets. He worked as a professional futures trader and has a passion for investing and building mechanical trading strategies. If you are interested in more quantitative trading strategies, investing ideas and tutorials make sure to check out our program Marwood Research.
This post expresses the opinions of the writer and is for information, entertainment purposes only. Joe Marwood is not a registered financial advisor or certified analyst. The reader agrees to assume all risk resulting from the application of any of the information provided. Past performance is not a reliable indicator of future returns and financial trading is full of risk. Please read the Full disclaimer.