“You can’t see the future through a rear view mirror.” – Peter Lynch
“The best stock to buy may be the one you already own.” – Peter Lynch
“You should not buy a stock because it’s cheap but because you know a lot about it.” – Peter Lynch
“An investment is simply a gamble in which you’ve managed to tilt the odds in your favor.” – Peter Lynch (more…)
Those readers who have frequented my Investing Caffeine site are familiar with the numerous profiles on professional investors of both current and prior periods . Many of the individuals described have a tremendous track record of success, while others have a tremendous ability of making outrageous forecasts. I have covered both. Regardless, much can be learned from the successes and failures by mirroring the behavior of the greats – like modeling your golf swing after Tiger Woods (O.K., since Tiger is out of favor right now, let’s say Jordan Spieth). My investment swing borrows techniques and tips from many great investors, but Peter Lynch (ex-Fidelity fund manager), probably more than any icon, has had the most influence on my investing philosophy and career as any investor. His breadth of knowledge and versatility across styles has allowed him to compile a record that few, if any, could match – outside perhaps the great Warren Buffett.
Consider that Lynch’s Magellan fund averaged +29% per year from 1977 – 1990 (almost doubling the return of the S&P 500 index for that period). In 1977, the obscure Magellan Fund started with about $20 million, and by his retirement the fund grew to approximately $14 billion (700x’s larger). Cynics believed thatMagellan was too big to adequately perform at $1, $2, $3, $5 and then $10 billion, but Lynch ultimately silenced the critics. Despite the fund’s gargantuan size, over the final five years of Lynch’s tenure, Magellan outperformed 99.5% of all other funds, according to Barron’s. How did Magellan investors fare in the period under Lynch’s watch? A $10,000 investment initiated when he took the helm would have grown to roughly $280,000 (+2,700%) by the day he retired. Not too shabby.
Background
Lynch graduated from Boston College in 1965 and earned a Master of Business Administration from the Wharton School of the University of Pennsylvania in 1968. Like the previously mentioned Warren Buffett, Peter Lynch shared his knowledge with the investing masses through his writings, including his two seminal books One Up on Wall Street and Beating the Street. Subsequently, Lynch authored Learn to Earn, a book targeted at younger, novice investors. Regardless, the ideas and lessons from his writings, including contributing author to Worth magazine, are still transferable to investors across a broad spectrum of skill levels, even today.
The Lessons of Lynch
Although Lynch has left me with enough financially rich content to write a full-blown textbook, I will limit the meat of this article to lessons and quotations coming directly from the horse’s mouth. Here is a selective list of gems Lynch has shared with investors over the years:
Buy within Your Comfort Zone: Lynch simply urges investors to “Buy what you know.” In similar fashion to Warren Buffett, who stuck to investing in stocks within his “circle of competence,” Lynch focused on investments he understood or on industries he felt he had an edge over others. Perhaps if investors would have heeded this advice, the leveraged, toxic derivative debacle occurring over previous years could have been avoided.
Do Your Homework: Building the conviction to ride through equity market volatility requires rigorous homework. Lynch adds, “A company does not tell you to buy it, there is always something to worry about. There are always respected investors that say you are wrong. You have to know the story better than they do, and have faith in what you know.” (more…)
Probably you have heard of Peter Lynch. But did you know that in 13 years, from 1977 to
1990, the Fidelity Magellan Fund he managed grew from $20m to a whopping $14b?!
One of his famous buy, Subaru, was already up twentyfold when he bought the stock and he made sevenfold after that.
Quotes from Peter are as follows:
“Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it.”
“If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them.”
“Investing without research is like playing stud poker and never looking at the cards.”
“Absent a lot of surprises, stocks are relatively predictable over twenty years. As to whether they’re going to be higher or lower in two to three years, you might as well flip a coin to decide.” (more…)
[ooyala_video_embed ec=xzcDE2aToIfa39eSMWdNEabn430CPd7H][/ooyala_video_embed]
Legendary investor Peter Lynch (formerly of Fidelity’s Magellan Fund) sat down for a rare interview with Charlie Rose. In it, he talks about philanthropy, what makes good management, and more.
Lynch notes that he’s now working with some young analysts but the only investing he’s doing now is for himself and for charity.
He joked that he was a “bottom down” investor. He likes to invest in the second or third inning of a story, noting that you could have bought Walmart (WMT) ten years after it went public and still done extremely well on that investment.
He identified the three C’s in investing: complacency, concern, and capitulation. He said complacency is the worst one. (more…)
“Before you invest, investigate.” William Arthur Ward (1921-1994) author, educator.
“With an evening coat and a white tie, anybody, even a stock broker, can gain a reputation for being civilized.” Oscar Wilde (1854-1900) Poet & playwright
“Never invest in anything that eats or needs repainting.” Billy Rose (1899-1966) Composer and entrepreneur
“Emotions are your worst enemy in the stock market.” Don Hays, stock market commentator
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” Warren Buffett (1930- ) businessman and investor
“Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.” Peter Lynch (1944- ) money manager
“Gentlemen prefer bonds.” Andrew Mellon, Businessman & financier (1855-1937)
“Anyone who thinks there’s safety in numbers hasn’t looked at the stock market pages” Irene Peter
“The stock market has forecast nine of the last five recessions” Paul A. Samuelson
“The arts are an even better barometer of what is happening in our world than the stock market or the debates in congress.” Hendrik Willem Van Loon
“If stock market experts were so expert, they would be buying stock, not selling advice.” Norman R. Augustine
“Now is always the most difficult time to invest.” Anonymous
“I can’t figure the stock market out. I think it’s wacky. I have done well with a long-term strategy and will continue being a long-term investor.” Scott McNealy
“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” William Feather
It’s easy to grin when your ships come in and you’ve got the stock market beat, but the man worth while is the man who can smile when his pants are too tight in the seat” Anonymous
“My job is to make people money. If I don’t include every factor that moves a stock, market psychology included, then I’m not doing my job.” Thomas Kurlak
The most valuable things in life are not measured in monetary terms. The really important things are not houses and lands, stocks and bonds, automobiles and real state, but friendships, trust, confidence, empathy, mercy, love and faith.” Bertrand Russell, Philosopher (1872-1970)
“Stock prices have reached what looks like a permanently high plateau” Irving Fisher, Economist, (1867-1947)
“A stockbroker urged me to buy a stock that would triple its value every year. I told him, ‘At my age, I don’t even buy green bananas.'” Claude Pepper
“If you hear that everybody is buying a certain stock, ask who is selling.” James Dines, Investment newsletter writer (1935- )
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“My greatest discovery was that a man must study general conditions, to size them up so as to be able to anticipate probabilities.” What did Livermore mean by “general conditions”? He meant the macroeconomic environment and geopolitics. Are they favorable or not favorable to buying stocks? Today, the Fed is raising rates and squeezing the money supply (the monetary base declined last month for the first time in years; a year ago, it was going up 10%.) The war in the Middle East is heating up. These general conditions are not conducive to a bull market, except for gold!
2. Learn from wise old men who have experience in the markets. In Reminiscences of a Stock Operator , the author talks about “the Old Turkey,” a “very wise old codger” who counseled Jesse Livermore on making good investment decisions and avoiding mistakes. How can you do this? The best way is to read histories of the great investors such as Warren Buffett, Peter Lynch, John Templeton and J. Paul Getty.
3. Learn your strengths and weaknesses. “We’ve all got a weak spot. What’s yours?” asks the Old Turkey. A good question that we must all answer. “Study mistakes,” he counsels. You don’t learn from your successes, only from your mistakes!
4. Always save some of your gains. “I was again living pretty well, but always saving something, to increase the stake that I was to take back to Wall Street.” Unfortunately, Livermore made the mistake of not living up to his own advice. He leveraged himself too much, and often went bankrupt. By taking some of your gains and investing the funds in alternative investments, such as real estate, art and collectibles, or gold coins, you protect yourself in case you are wrong.
This reminds me of something that happened to me many years ago. I had made a $2 million profit on a penny stock and my wife sat me down and insisted I pay off the mortgage, which was sizeable. I told her I preferred to reinvest the profits in more penny stocks, but she insisted, and I finally agreed with her and paid off the mortgage. It was the best decision “I” ever made! Had I invested the profits in more penny stocks, I would have lost my shirt, because the penny stocks went into a major bear market soon after.
5. Beware the charismatic financial guru! “It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.” Oh, how true. I well remember the times I invested in several tax shelters that eventually went bust, because I was thoroughly convinced by a smooth talking salesman who seemed brilliant at the time.
If one of the greatest traders in the world told you how to buy and sell the best stocks for the most profits would you listen? Well we have a chance to do just that with Bill O’Neil’s book “How to Make Money in Stocks”. His lifetime of research on how the market actually works is in his book. Not his opinions but through studying the markets as a scientist would.
Not only did O’Neil’s firm study the best performing stocks of the past 100+ years but the AAII tested his system among fifty others for 12 years in real time and it won!
From January 1998 through December 2010, the American Association of Individual Investors has conducted an independent, real-time study of over 50 leading investing strategies, including CAN SLIM. The results show that IBD’s CAN SLIM strategy outperformed all other strategies, gaining +2,487.3% while the S&P 500 rose just 29.6%.
“After surveying all the top performing equity managers in the United States, Bill O’Neil was number one. His track record is second to none. And I’ve always wanted to work for the best.”
“In terms of long-term track record, yes. He has the best numbers. If you go back 20-25 years and you stack all the guys together that have been in the market that long, Bill’s got the highest returns. Higher than Peter Lynch. Higher than Buffett. It’s fantastic. I’ve painstakingly studied each of the firm’s market calls from I think it was 1968 onward because I wanted to see exactly where O’Neil was saying buy and sell. It just struck me, this accumulation/distribution and follow-through day technique works great because he’s never missed a major bull or a major bear market.”-Chris Kasher
