Peter Lynch is one of the greatest investors of all time. Lynch managed the Fidelity Magellan Fund from 1977 to 1990, during which time the fund’s assets grew from $20 million to $14 billion. More importantly, Lynch reportedly beat the S&P 500 Index benchmark in 11 of those 13 years, achieving an annual average return of 29%.
Lynch has stated that his ideas are widely misquoted as he pointed out in this article with the WSJ:
“I’ve never said, ‘If you go to a mall, see a Starbucks and say it’s good coffee, you should call Fidelity brokerage and buy the stock,’ ” Mr. Lynch says, some 25 years after his retirement from running Magellan Fund was front-page news.
Following the market still at age 71, he instead explains his philosophy this way: Use your specialized knowledge to home in on stocks you can analyze, study them and then decide if they’re worth owning. The best way to invest is to look at companies competing in the field where you work. Someone with deep restaurant-industry experience would have predicted the success of Panera Bread Co. and Chipotle Mexican Grill Inc., he says: “If you’re in the steel industry and it ever turns around, you’ll see it before I do.”
What’s wrong with the popular-wisdom version of his ideology, which is usually cited as “invest in what you know”? It leaves out the role of serious fundamental stock research. “People buy a stock and they know nothing about it,” he says. “That’s gambling and it’s not good.”
Here’s one of my favorite Lynch videos where he discusses how an average investor can make money in the stock market, it’s a must watch for all value investors:
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