Another superstar investor that we want to feature on WealthLift INSIDER is Peter Lynch. Under his direction, the then little-known Magellan Fund became the best performing fund in the world from 1977 to 1990. He grew the fund from $18 million in assets to $14 billion during his 13-year leadership for an amazing annual average return of 29%. To dissect his investment philosophy, here are ten investing quotes from the legendary Peter Lynch:
1. “If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” – Before buying the stock of a company, you need to understand it completely. This simple test will help you double check if you really have a valid reason for investing, aside from “because it’s going up.”
2. “Behind every stock is a company. Find out what it’s doing.” – Most investors often forget that the stocks they are buying or selling are shares of a certain company. Remind yourself constantly that the underlying value of the company will determine the stock price eventually, so do your research and understand the real value of what you are buying.
3. “Owning stocks is like having children — don’t get involved with more than you can handle.” – In short, don’t bite more than you can chew. Make sure that you focus on a few companies that you can research and monitor frequently. Investing is not about how many kinds of stocks are in your portfolio, it’s about how well your portfolio is growing.
4. “Stocks aren’t lottery tickets. There’s a company attached to every share.” – In a similar light to quote #2, it’s so easy to buy or sell stocks nowadays, just get an online broker, fund it, click here, click there, and voila! You’ve bought yourself some stocks. But now what? You bought what? And why? Come again?
5. “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.” – Investing is a numbers game. You cannot and must not expect a perfect game, if you can’t take a loss, then you’re doomed right from the start. Success in investing and in life depends on dealing with failure, cutting losses early, learning from them, and moving on.
6. “The person that turns over the most rocks wins the game. And that’s always been my philosophy.” – Investing is all about the thoroughness of your research. The more you understand the companies you invest in, the better your chances of success.
7. “During the Gold Rush, most would-be miners lost money, but people who sold them picks, shovels, tents and blue-jeans (Levi Strauss) made a nice profit.” – This is a great investing principle that most people tend to overlook. When you identify a booming industry or stock, don’t forget to look at the companies supplementing that industry. For example, when Apple Inc. (AAPL) became successful with the iPhone, a lot of other companies supplying them with technology and raw materials also made huge money.
8. “All the math you need in the stock market you get in the fourth grade.” – Investing is not rocket science, if it was, then most university finance professors would be billionaires (which is not the case). Peter Lynch’s favourite valuation models are pretty simple to calculate, take for example the PEG ratio (which he popularized). You just need basic math do get all the important ratios that you need. What you really need to supply to your investing is the elbow grease and discipline to do your research.
9. “The natural-born investor is a myth.” – When it comes to investing, hard work and discipline is still the best determining factor for success. Stock market investing is a skill that you could and should learn – that’s why WealthLift exists – to help and guide investors toward investment success.
10. “The simpler it is, the better I like it.” – Like all the super investors that we have studied here in WealthLift.com, Peter Lynch believes in the power of simplicity. A simple but effective investment plan will always be better than a complicated one because the simpler one has less room for errors. Also, the simpler the business model of a company, the easier it is to understand and evaluate – and that will help you make better investment decisions.
There’s nothing better than a superstar investor like Peter Lynch giving enlightening and encouraging words to ordinary investors like us. So let’s all heed his advice to get a better shot at investment success.