Best Quote:If one could tell the future by looking at Balance Sheets then Accountants and Mathematicians would have been the richest people in the world.
What would have Lynch bought in India? ITC, Maruti, Hero honda, Bharti Airtel, Pantaloon Retail, TV-18 and the likes.
Most Fund Managers are known for their investing styles rather then the investments that they make. Peter Lynch is one of them. As the fund Manager for the Magellan fund Lynch grew to fame for his "Buy what you see "school of thought". An initial Investment of US $ 10,000 would have grown over to US $ 2.50,000 in the 13 years that Lynch managed the fund. His annual rate of compounded growth averaged 29.2%. The greatness of Lynch lied in his simplicity. He was one of the few people from the Fund Manager fraternity who taught and practiced the KISS (Keep it Simple Stupid) principle.
Most often people invest in sectors and industries that they know little of. For instance a Doctor could be investing into a technology company while a software engineer could be looking at pharmaceutical stocks. Lynch often remarked “Your investor’s edge is not something you get from Wall Street experts. It’s something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand”
Although he held more then 1400 stocks in his Magellan fund Lynch advised people to hold stocks of as many companies as they felt comfortable with. For instance he advised investors to hold fewer well researched stocks rather then own a complete index replica as such.
His advise on the number of stocks investors should hold was also simple. “Owning stocks is like having children – don’t get involved with more than you can handle. The part- time stock picker probably has time to follow 8-12 companies, and to buy and sell shares as conditions warrant. There don’t have to be more than 5 companies in the portfolio at any one time”.
Lynch was the proponent of the PEG theory. As long as the PE of a company was lower then the growth rate that it expected to generate Lynch would have advocated a buy on the stock.
While making investments Lynch advised people not be try and catch bottoms. If you liked a company he argued take a small position and add it up as you see further visibility in earnings growth. Lynch stated that “time is on your side when you own shares of superior companies. You can afford to be patient – even if you missed Wal-Mart in the first five years, it was a great stock to own in the next five years also”. In this connection he presented a very interesting statistic.
| Time and not Timing is the Key | |
|---|---|
| Market timing strategies | S&P Returns for 40 years since 1954 |
| Invested all the time | 11.4% |
| Missed the ten most profitable months | 8.3% |
| Missed the forty most profitable months | 2.3% |
Lynch cautions investors to do away with weekend thinking, predicting the future course of the economy and debating on the movements in interest rates and other macro economic variable. His advise on this count was “Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the company you are invested in.”
And Finally Lynch says that several small gains make a one very large move. Three 30% gains equals a four bagger is his advice to investors.
