Peter Lynch's Investing Approach | Top 10 Peter Lynch Quotes
AI's response in regular print | Beverly Hills, CFP®, Joe O'Boyle's in italics
“What are the top investment lessons from legendary investor, Peter Lynch?”
Peter Lynch, one of the most successful and respected investors in the world, is renowned for his commonsense approach to investing. The wisdom he shared in his books, "One Up on Wall Street" and "Beating the Street," continues to be relevant for investors worldwide. Lynch, who led Fidelity's Magellan Fund from 1977 to 1990, averaged a remarkable 29.2% annual return during his tenure, consistently outperforming the S&P 500 stock index and making it the best-performing mutual fund in the world.
Lynch's investment philosophy centers on understanding what you own, investing for the long term, and capitalizing on market panic. His strategy doesn't just resonate with professional investors; even those new to investing can take valuable lessons from him.
"Invest in what you know." - This is perhaps Lynch's most famous advice, suggesting that investors should put their money in companies or industries they are familiar with.
“The single most important thing to me in the stock market for anyone is to know what you own. I’m amazed how many people who own stocks would not be able to tell you why they own them.”
“I made money in Dunkin’ Donuts. I can understand it. When there were recessions, I didn’t have to worry about what was happening. I could go there, and people were still there, I didn’t have to worry about low-priced Korean imports. I can understand it. And you laugh. I made 10 or 15 times my money in Dunkin’ Donuts. Those are the stocks I can understand. If you don’t understand it, it doesn’t work. This is the single biggest principle.”"Although it's easy to forget sometimes, a share is not a lottery ticket... it's part-ownership of a business." - Lynch emphasizes the importance of understanding that when you buy a stock, you're becoming a part owner of a real business. "Behind every stock is a company. Find out what it’s doing." This emphasizes the need for fundamental analysis and understanding a company's business model before investing in it.
“There are reasons for stocks to go up. It’s a magic number, easy to remember. Coca-Cola is earning 30 times per share what they earned 32 years ago. The stock has gone up thirtyfold. Bethlehem Steel is earning less than they did 30 years ago. The stock is half its price of 30 years ago. Stocks are not lottery tickets. There’s a company behind every stock. If a company does well, the stock does well. It’s not that complicated.”"The real key to making money in stocks is not to get scared out of them." - Successful investing is often as much about psychology as it is about economics. Lynch emphasizes the importance of staying calm and not letting short-term market fluctuations dictate your decisions. "Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and stock mutual funds altogether." Lynch acknowledges that investing in stocks requires not only intelligence but also emotional resilience.
"People may bet on hourly wiggles of the market but it's the earnings that waggle the wiggle long term." - Lynch stresses the importance of a company's growing earnings in the long run. "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." Lynch emphasizes that understanding the company behind the stock growing earnings over time is key to investing.
"If you can't explain to a 10-year-old in two minutes or less why you own a stock, you should not own it." - Simplicity and understanding are key themes in Lynch's investment philosophy. Lynch also shared that "All the math you need in the stock market you get in the fourth grade." Lynch has often emphasized that successful investing doesn't require complex mathematical models or theories.
"Time is on your side when you own shares of superior companies." - Lynch believed in the long-term benefits of holding onto stocks of good companies. Time and compound returns can be an incredibly powerful combination.
“Another key element is that you have plenty of time. People are in an unbelievable rush to buy a stock. I’ll give you an example of a well-known company. Walmart went public in October of 1970. It already had a great record with 15 years’ performance and a great balance sheet. You’re a conservative investor. You’re not sure if Walmart can make it. You want to check. You see them operate in small towns. You’re afraid. They make it in seven or eight states. You want to wait until they go to more states. You keep waiting. You could have bought Walmart 10 years after it went public and made 35 times your money. If you bought it when they went public, you would have made 500 times your money, but you could have waited 10 years after it went public and made over 30 times your money. You could have waited three years after Microsoft went public and made 10 times your money.”"In this business, if you're good, you're right six times out of ten. You're never going to be right nine times out of ten." - This quote reminds us that even the best investors are wrong sometimes, and it's important to keep realistic expectations.
“You can’t get too attached to a stock. You must understand there’s a company behind it. You can’t treat this like your grandchildren. You must deal with the stock and say, “I understand the company.” If it deteriorates, if the fundamentals slip, you must say goodbye to it. Remember the rule that the stock does not know you own it. This is a breakthrough. You must understand it and say, they’re doing well and as long as they’re doing well, I’ll hold on to my position. My best stocks have been the stocks I owned in my fifth, sixth, and seventh years, not my fifth, sixth, or seventh day.”"Go for a business that any idiot can run - because sooner or later, any idiot probably is going to run it." - Lynch emphasizes the importance of investing in businesses with simple, durable models. Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets. Always look at the balance sheet to see if a company is solvent before you risk your money on it.
"A stock market decline is as routine as a January blizzard in Colorado. If you are prepared, it can’t hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.” Lynch further went on to say that “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'."
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." - This quote underlines his opinion on trying to time the market. "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."
“The key organ in your body in the stock market is your stomach. It’s not the brain. If you can add 8 and 8 and get reasonably close to 16, that’s the only level of math you need to know. You don’t need to know the area under the curve. Remember that quadratic equation and integral calculus and the area under the curve? Whoever cared what was under the damn curve? But you had to study this. You don’t need this in the stock market. All you must know is that it’ll always be scary, there will always be something to worry about. You must forget all about it. Cut it all out and own good companies or own turnarounds. Study them and you’ll do well.”
In conclusion, Lynch's teachings serve as an essential guide for both novice and experienced investors. They underscore the importance of understanding what you invest in, focusing on earnings, taking a long-term view, and maintaining patience, even during volatile times. For Lynch, successful investing is not about complex models or predictions but about diligence, understanding, and common sense.
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Joe O'Boyle is the founder and principal of O'Boyle Wealth Management, a full service financial planning and investment management firm, located in Beverly Hills, California. Joe O’Boyle was named to InvestmentNews 40 under 40 class of 2016, and has a catalog of financial planning and investing articles on Money.com & U.S. News. Disclosure information.