3 Investing Principles From Legendary Investor Peter Lynch
Being an avid investor, I have read numerous books on investments and the stock market. Interestingly, though, the book that has had the biggest impact on my investment journey is also the very first book I have read.
Peter Lynch’s One up on Wall Street provided me with the basics of investments as well as principles that I still abide by today. Even though the book was written over 30 years ago, many of the concepts and investment ideas still endure to this very day.
In light of this, I have decided to write three principles from the book that have shaped the way I think about investing.
“You don’t lose anything by not owning a successful stock, even if it’s a ten bagger.”
Don’t beat yourself up over a failure to buy a successful stock. There are over 700 stocks listed in the stock market in Singapore and over 3,000 stocks in the US, which means there are bound to be opportunities aplenty.
If you are always worried about not buying a successful stock, you may end up making rash decisions in fear of “missing out”. Needless to say, this will work against you in the longer term.
“Don’t become so attached to a winner that complacency sets in and you stop monitoring the story.”
Many times, investors find winners that have appreciated in value and perform beyond expectations. The investor may then continue holding the stock indefinitely without monitoring the company’s progress along the way. Business environments, however, are dynamic and constantly evolve. Even if a company had years of success and growth, the future might not be all so rosy.
A successful investor should instead appreciate the past performances of a company but continue to monitor the business climate of the future. As investors, we need to ensure that our investments can continue to outperform the market. If there are changes to a company’s fundamentals, it may be wise to relook at the investment and consider discarding it, even if it had been a winner in the past.
“Just because a company is doing poorly doesn’t mean it can’t do worse.”
Some investors scour the depths of the stock market by screening for stocks that are at 52-week lows. Of course, sometimes we may find gems hidden amongst the underperformers. But many times there may, in fact, be good reasons for stock prices to be low.
As investors, we need to be sensible in our approach. We should not be fooled into thinking an underperforming company can turn its fortunes around unless we have good reasons to believe so.
The Foolish Bottom Line
Peter Lynch was a highly respected fund manager who averaged an astonishing 29.2% annual return between 1977 and 1990.
He believes that even retail investors can perform well in the stock market just by doing a little bit of research. His book brought to light some of the fundamental principles that have allowed him to beat the market impressively.
As investors, we can definitely learn a thing or two from this investing legend.