Peter Lynch Investment Strategy

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It was 2012 and except for seeing Udayan Mukherjee come on CNBC TV18 and newspapers come in the morning with a big list of stock prices, I really didn’t know much about stocks.

Enter, Peter Lynch Investment Strategy.

Peter Lynch was the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990.

He averaged close to 29.2% in Annual returns outperforming the S&P 500 (the benchmark) by a huge margin. Under his 13-year tenure, the assets under management of Magellan Fund grew close to 10x to USD 14 Billion.

Despite being 76 years old, his wisdom makes sense at every point in time. The only Indian stalwart I can think of with an equal to Peter Lynch Investment Strategy would be Sunil Singhania who runs his own shop today.

Mr. Singhania did a similar stint with the erstwhile Reliance Mutual Fund which to date is the best performing fund since inception in the Indian Context.

Coming back to Peter Lynch and Peter Lynch Investment Strategy.

Well, this post is about two great books and his investment strategy that have led the foundation for a lot of investing frameworks I have personally developed for myself.

The two great books that I intend to talk about here along with his investment strategy are One up on Wall Street and Beating The Street.

Grab a coffee, this is a long one.

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Peter Lynch Investment Strategy
Peter Lynch Investment Strategy

Let’s start with One Up on Wall Street.

Well, for starters a lot of times we get swayed away with what Wall Street has to say and try and equate everything with the Indian context – without much avail.

Doesn’t matter if you know finance or don’t, are a seasoned investor or just starting out, this will set the record straight.

You see, as a country, we are always hush-hush when we need to talk about money.

That creates its own set of problems. We are always debating on why the inflation keeps going up, but we never really have the conversation where we deliberate –

How can we increase per capita income of individuals?

(Took this as a plug from one of the podcasts I’ve recently started following.)

While we don’t expect everyone to get self-employed or start million-dollar businesses, the avenue for passive investment is open for all. That is what makes the stock market such a great place.

It’s like you can pick a piece of your favorite companies for as low as USD 1.49 (~INR 100).

Coming back to Peter Lynch Investment Strategy.

Peter Lynch, when being at the helm of the Magellan fund did an interesting thought experiment.

He basically told a bunch of school kids to construct a portfolio making them pick their favorite stocks.

They chose the usual suspects (from their ‘circle of competence’) – Nike, McDonald’s, Mattle Inc., etc. That very year, this chosen bucket outperformed the best performing fund on Wall Street by a huge margin, let alone the S&P 500!

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What’s the point?

Well, Lynch argues that stock picking is not that tough how the industry insiders make it to be.

Sometimes the closest neighborhood store can give you more information about what is selling and what is not rather than you relying on the daily news bulletin for ‘hot stocks.’

To this, Lynch quotes

“Avoid hot stocks in hot industries.”

 While the best books that will help you suited to the Indian context have already been talked about in an earlier post here, this will help you broaden your framework.

Lynch answers almost every question – right from when to buy, when to sell, how to classify companies, is diversification worth it? Without giving away more, I would urge you to get your copy here.

Well, not a big fan of piracy and PDFs but just to give you some anecdote to tilt in favor of paperback, the last print was done in the ’90s, so the book will give you a good old-world rustic feel.

Well, in this book, Peter Lynch goes a step further and narrows down 25 principles that have stayed with him based on his investing and learning journey.

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On one hand where Lynch talks about the art of picking stocks from the point of view of an individual investor in One Up on Wall Street, Beating the Street is all about looking at the ‘art’ from the lens of a fund manager.

While you get the narrative of what Lynch has to say, I would like to close this with a brilliant investment strategy that Lynch puts in the book.

Go for a business that any idiot can run – because sooner or later any idiot probably is going to be running it.

Trust it helps you too.

Watch: Peter Lynch Investment Strategy in his Own Words

 


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Saket Mehrotra

Saket Mehrotra

Saket is a number cruncher, avid reader, coffee connoisseur, book store hopper & Metallica fan. He is an active follower of Sensex since 2009. CA, CS by profession.
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