10 investing tips from Peter Lynch that you shouldn’t ignore

Peter Lynch is the legendary former manager at a mutual fund called Fidelity Magellan. Under his management from 1977 to 1990, the firm generated returns of 29% and made capital for its investors. 

After cutting back on work, Lynch started spending a great deal of time on philanthropy. Thanks to the Lynches charities, Peter even scored himself a seat on the Harvard Medical School Board of Fellows, despite donating $10 million to its rival, Boston College, every year. He doesn’t have any achievements in the medical field, which makes his membership in a Medical School Board even more surprising.

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Some of Lynch’s greatest contributions were One Up on Wall Street and Beating the Street. Although his investing tips from his works were hard to narrow down, this article will focus on 10 of them.

1. “Invest in what you know”

Lynch’s most popular quote is often misunderstood. He’s not suggesting you buy shares just because a company or whoever is running it is familiar to you. He points out that your investments should fall within your personal circle of competence. When you understand the intricacies of a certain industry, you’re better equipped to assess a business’s competitive position in this business. 

2. “This is one of the keys to successful investing: focus on the companies, not on the stocks”

Stocks are not lines on a computer screen. When you purchase fractional ownership of equity in an organization, it has to mean something. These are real businesses with visions, missions, teams, strategies, products, services, etc.

3. “What the stock price does today, tomorrow, or next week is only a distraction”

Volatility and day-to-day movements are irrelevant to an investor, which means there is no reason to follow or worry about them. Focus on your investment time horizons dictated by your strategy. And when you see sensational headlines, don’t go directly to your broker to sell. You’ll learn more valuable information from operating and financial results rather than from the news or social media.

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4. “The typical big winner…generally takes three to ten years to play out”

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Investments are not quick fixes to your current financial struggles; most investors measure returns over years and decades. So, give your assets plenty of time to rise in value.

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5. “The real key to making money in stocks is not to get scared out of them”

You can’t make investment decisions out of fear, whether it’s buying, holding, or selling. You have to get comfortable with the risks and accept that you’re not immune to loading up on a losing stock as it hits the ground or having a profitable trade do a sharp turnaround. As long as you stand behind the company’s fundamental story, you shouldn’t be afraid to own its stock.

6. “Time is on your side when you own shares of superior companies”

The simple truth is that a great company is a great investment. Look for companies with a competitive advantage (a strong intrinsic value) that sets them apart from their competitors. Historically, such companies have grown stronger over the long term while their rivals faded away. Also, you’ll likely enjoy numerous perks to compound your gains, such as dividends.

7. “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections than has been lost in corrections themselves”

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You may unknowingly be cutting your returns by attempting to time and get ahead of market cycles. It’s practically impossible to accurately predict a recession or an economic boom. The better strategy is to hold your investments until the market calms down and recovers, which it has done multiple times throughout history.

8. “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”

Don’t aim for perfection. The beauty of stock investing that Lynch preaches is that one stock can lose half of its value while another stock can increase up to 10 times its original price.  Make the most out of the asymmetric risk profile so that your 6 out of 10 successful assets absorb any fails.

9. “All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out”

You don’t need every investment to be profitable. As long as you manage to have a few great ones in your portfolio, their overall performance can bring you to the level of capital you want. It’s better to keep track of the returns from “good” stocks and the losses of “bad” stocks to see if you’re making a net gain.

10. “If you’re lucky enough to have been rewarded in life to the degree that I have, there comes a point at which you have to decide whether to become a slave to your net worth by devoting the rest of your life to increasing it or to let what you’ve accumulated begin to serve you”

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Lynch quit his full-time job at the time when his fund had the best 20-year return of any mutual fund ever. He decided not to chase more capital and instead focused on building a fulfilling life, spending time with family, mentoring young analysts, and running multiple charities to support education, religious, cultural, and historic organizations.

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