Top three investing lessons from Peter Lynch

Highlights

• Peter Lynch has worked 13 years for Fidelity's Magellan® Fund (from 1977 to 1990).
• He emphasises holding on to your winning bets to be able to become a successful investor.
• Chasing every stock that’s making the headlines or posting new highs is not something a professional investor like Peter Lynch does.

Peter Lynch is a well-known name in the world of investing. The legendary fund manager has worked 13 years for Fidelity's Magellan® Fund (from 1977 to 1990) and helped increase assets under the management from US18 million to US14 billion. Peter Lynch has earned a reputation as one of the top performers in the industry with his successful track record and a simplistic approach to investing.

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Peter Lynch has also authored quite a few books, including some of the bestsellers such as One up on Wall Street and Beating the Street. If you are looking to take your investing career to the next level or even ready to start investing, here are a few tips from this legendary fund manager which would be hard to ignore.

1. Let your winners run

Picking the right stocks is one thing and holding on to these winners for their stunning gains is a different ball game. Peter Lynch invested in numerous stocks in his lifetime, some of which did not do well, a few did decently well and a handful of them went on to become multi-baggers. It is these handfuls of gigantic returns that have made most of the difference in his investing career.

He was a firm believer in not getting out prematurely due to noise in the market such as rumours, news, analysts’ views, and staying invested till fundamentals of the company remain intact. This thorough process is the cornerstone of being able to ride out short-term volatility in order to get long-term gains.

2. You don’t have to “kiss all the girls”

In his book One Up On Wall Street, Peter Lynch writes, “You don’t have to kiss all the girls. I’ve missed my share of tenbaggers (a share delivering 10x return), and it hasn’t kept me from beating the market”. It is the analogy he used to emphasise on stop stressing upon every multi-bagger one has missed. One can never capitalise on all the strong performers in the market.

Chasing every stock that’s making the headlines or posting new highs is not something a professional investor like Peter Lynch would do. Rather sticking to your niche and trying to stay within your competence will help you to sharpen your focus, eventually leading you to make more qualitative decisions.

As a matter of fact, Warren Buffet has also missed Netflix, Amazon, Google, Facebook, etc. All of them have been huge wealth creators in the past few years, but as he says he doesn’t understand these new-age businesses, and still, he is worth over US$115.5 billion, according to Forbes’ real-time billionaire index (as of 3 February 2022).   

3. Importance of Diversification

Peter Lynch was a big believer in the diversification of a portfolio. He was well known to be a holder of the high number of stocks in his Magellan fund. His portfolio was diversified across fast- and slow-growing companies. However, despite holding numerous stocks in his portfolio, all his stocks had to go through rigorous analysis before being added to the portfolio.

Retail investors could follow the same approach. Diversification does not mean keep adding stocks just for the sake of diversification, rather it has to be systematic and uncorrelated investments.

Bottom Line

Investing in the stock market is both art as well science. There is no one way to successful investing and each investor has its own idiosyncrasies that need to be aligned with the investing process they follow. The above-mentioned tips by Peter Lynch might be extremely helpful for some and for some it may not work. Therefore, investors should stick to their understanding and core competencies first, and then look to improve upon them.        

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