What Peter Lynch Taught us About Investing in Stocks
Peter Lynch has long been one of the most revered peronalities
in stock investing. His returns as a manager of the Fidelity
Magellan Mutual Fund were extraordinary, and the huge influx of
money into the fund largely because of his stewardship made it
the largest mutual fund ever with him at the helm. But Peter
Lynch is also known for a series of books he wrote which made
investing easy to understand for all people. "Beating the
Street", "One Up on Wall Street", and "Learn To Earn" all gave a
plain-spoken account of what Peter Lynch had learned in his many
years of successful stock picking. He laid his philosophy out
into a series of well respected books, and many people have used
his techniques successfully to find great stocks of their own to
invest in. Most of his principles are as applicable today as
when he first introduced them. We'll take a look at a few of
these briefly:
Peter Lynch's greatest teaching was that we are all surrounded
by superior investing ideas if we open our eyes to the
possibilities. Behind every great stock is a great company,
Lynch figured. So the next time you're at the mall, pay
attention to which companies are doing the most business. Which
store is really crowded? What restaurant chain has really long
lines when you go there? Think of a company that moves to your
town and dominates the local competition. These companies, Peter
Lynch told us, are the ones that grow into the big winners on
Wall Street. And companies that go from tiny seeds to huge
multinationals make their investors rich. Most of the battle in
investing is finding the best companies and putting the money
into them when they're just beginning to grow.
Peter Lynch loved growth stocks. He had his biggest gains when
he invested in stocks of companies that were hot at the time. As
they ascended into the highest arc of their growth phase, their
share price also sizzled. Investors who get in early, at the
beginning stage end up making boatloads of dough. Get a few of
these twelve-baggers, as Lynch called them, and you're well on
your way to easy street. He followed his own advice and often
hit huge returns on several stocks that would save his entire
portfolio return for the year. If you're pretty sure you're onto
a winner, then you need to swing for the fences when your time
at the plate occurs. Companies that have rapidly accelerating
profit margins and increasing sales have stocks that rise along
with them. As the business expands, the company's share price
rises accordingly. If you can find a micro-cap company that ends
up becoming a large cap during the time frame you hold it,
you'll have substantial returns.
It's impossible to summarize the written and spoken words of a
great investor like Peter Lynch in a space like this, so I'll
encourage you to do more research and check into this series
yourself. All of the basic priniciples of growth investing and
portfolio management are covered, and he's also an upbeat writer
who illuminates a great many bullish insights you may not have
looked into before. Concentrating on a portfolio of growth
stocks has worked for others, and it may just work for you.