Peter Lynch is a famous Wall Street investor working for Fidelity Investments. As proof of his competence his net worth is estimated at over 350 million dollars. He is well known for his books entitled One Up On Wall Street, Beating the Street, and Learn to Earn.
While managing a certain mutual fund at Fidelity from 1977 to 1990, the asset worth grew from 20 million dollars to over 14 billion dollars. There is certainly much to learn from this established guru in the financial markets.
Quick Facts
- Born January 19, 1944 in USA
- In 1968 he earned a Master of Business Administration from the Wharton School of the University of Pennsylvania
- Spends much of his time giving back through philanthropy
- Created popular adage, ‘invest in what you know’ and ‘ten bagger’ (having a stock appreciate 10 times its value)
- Ability to consistently outperform the market
Investment Style
To sum up the style of investment by Peter Lynch is not easy. He tirelessly works to ensure each stock is up to his very high standards. He carefully analyzes the fundamentals of a stock to ensure soundness from the ground up. Peter Lynch is not one to be easily shaken by minor market fluctuations and random noise. He is tenacious in his strategy, unshakable. He would be considered a long term investor which is important for those managing funds.
Some of Peter Lynch’s principles for investment are to know why a company is a good investment. He is known to say that if you couldn’t describe the company with a crayon and paper, it’s too complex. Go with what you know, or at least can explain.
Another principle of investing that Peter Lynch followed was to pick ‘story stocks’. These are companies that people love to root for and get picked up in newspapers. He would tirelessly look for smaller companies with high growth. How did he find such stocks? 99 percent of the task is hard and laborious grunt work.
Peter Lynch believed that a good investment was more than numbers. One should believe and like the stock they put money with. To see this in action he would often give his daughters money to see where they liked to spend it. Or he would take his family to a supermarket and poll their experience. If the family enjoyed the store experience, this helped him to decide whether to invest in the company or not.
Reportedly in a New York Conference in 2005, Peter Lynch shared his investment checklist with others. This is what they found out…
Peter Lynch’s Investment Checklist
- It is futile to try predicting the economy and interest rates
- Know what you own
- You have plenty of time to identify and recognize exceptional companies
- Avoid long shots
- Good management is very important - buy good businesses
- Be flexible, humble, and learn from your mistakes
- Before you make a purchase, you should be able to explain why you are buying
- There's always something to worry about
As well, there were certain numbers that Peter Lynch analyzed, although the list is far from definitive. He would look at the consistency and growth of earnings, the price to earnings ratio as compared to historical figures, the industry group and the future growth of the company(PEG), the available cash, the debt to equity ratio, and the inventory the company has.
If a company was viewed as boring, out of favor, yet was being invested into by institutions and insiders, with little competition this added weight to the decision to purchase shares.
Peter Lynch the Man and Leader
Peter Lynch is undoubtedly one of the greatest investment minds alive today. He detests when people equate investing to gambling. You are part owner of the business you wish to spend with and you should take that approach before investing. He stresses over and over again how important it is to know about a company BEFORE you invest.
Peter Lynch has stressed over and over the glut of conflicting and unreliable information out there. He once said, "Thousands of experts study overbought indicators, oversold indicators, head-and-shoulder patterns, put-call ratios, the Fed’s policy on money supply, foreign investment, the movement of the constellations through the heavens, and the moss on oak trees, and they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack."
The point he is trying to stress is that each investor should carefully do his own due diligence. Do your own research, investigate but do not quickly give your trust away or have it lost to mere credulity, follow the guiding principles of Peter Lynch and you will become a good investor following in great ones footsteps.
Peter Lynch Quotes
- I think you have to learn that there's a company behind every stock, and that there's only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.
- I've found that when the market's going down and you buy funds wisely, at some point in the future you will be happy. You won't get there by reading 'Now is the time to buy.
- When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30. You just don't know when you can find the bottom.
- You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets.
- Go for a business that any idiot can run - because sooner or later, any idiot probably is going to run it.
- Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.
- Don't bottom fish.