How To Invest Like Peter Lynch

Hello Grasshoppa,

If you are into investment & book reading, you might have heard of Peter Lynch. For those that have not hear his name before, who is Peter Lynch? He is considered by many as One of the Best Investors of All Time. He is widely known for achieving 29.2% Annualized Return from 1977 to 1990 for his fund.

As a Portfolio Manager of Fidelity Magellan Fund, his aim is to grow the fund by using growth stocks to outperform the overall stocks market. His track record of beating S&P 500 Index is 11 out of 13 years & his fund asset have grew from $20 Million to $14 Billion.

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What are Peter Lynch Investment Strategy that have helped him to be One of the Best Investors of All Time?

1. Invest in What You Understand
Peter Lynch believes that you are able to invest better if you understand the business. Some of his best stocks investment comes from walking around the grocery store. Buying stocks from the industry you understand definitely helps since you understand how the industry works. Stumbling across any product during your shopping might help as well.

2. Look at Long Term Investment
According to Peter Lynch, buy when the market is down & buy when the market is up. Over the long run, market timing does not matter much. His advice is, do not try to time the market. Just focus on the company that can help you to generate income for the long run.

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3. Diversify
His example of Diversification is his Magellan Fund where the fund are investing in more than 1000 companies. He strongly believe that your portfolio should consist of different stocks from different industry & size. Peter Lynch believes that Diversification purpose should not only be for the sake of reducing risk but also to invest among the best companies.

4. Do Your Homework
This is one of the most important thing that he emphasize in his books. To be honest, I used most of his checklist for my stocks investment & I find it to be really helpful.

  • Percentage of Sales – Before you invest in the company that sells the product you like, look at how many percent of the company sales come from that product.
  • P/E Ratio – This is common among many investors to identify the amount of money investors willing to pay vs the companies earnings.
  • PEG Ratio – Not common among investors but this may be useful to some of you. You can calculate this by using (PE Ratio / Earning Growth Rate)
  • Strong Cash Flow – The more cash the company have, the chances are higher they are able to survive in any market situation.
  • Debt to Equity Ratio – The lower the Debt to Equity Ratio, the better it is for the company.
  • Book Value – To calculate the Book Value of the company, you can take the company (Total Asset – Total Liabilities / Outstanding Shares). Sometimes you may find companies that are ON SALE.

You can find those data & information you need at the Company Annual Financial Report. Do invest some time to read those companies Financial Report & it will help you make a better decision in investing in that particular company.

5. Focus on the Stocks that Everyone is Overlooking
Most of the time, most investors are focusing on the bigger companies. Smaller companies are often overlooked by most investors. A well managed smaller companies may have a good chance to grow & the value of the stocks may increase over the long term.

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Peter Lynch Investment Quotes :

1. “Investing without research is like playing stud poker and never looking at the cards.”
2. “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.”
3. “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.”
4. “Go for a business that any idiot can run because sooner or later, any idiot is probably going to run it.”

Peter Lynch Books :

1. One Up On Wall Street (1989)
2. Beating the Street (1993)
3. Learn to Earn (1996)

Conclusion :

If you ask me who is my another favorite Investor aside from Warren Buffett, Peter Lynch will be my first choice. Most of my investment strategy & ideas comes from reading his book. I highly recommend you to check out his book if you are keen to learn more about investing. Hopefully by applying his investment strategy, you are able to be more profitable in your stocks investment.

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