3 Things You Must Learn From Investing Guru Peter Lynch

Investors can find a wealth of valuable information in Peter Lynch's three timeless investing principles.

Aug 30, 2014 at 2:01PM

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Source: 401kcalculator.

Peter Lynch has been one of the most successful investors in the mutual fund business. He famously ran the Fidelity Magellan Fund from 1977 until 1990, delivering annual average returns of 29% that made it a top-ranked mutual fund over the investment period.

He beat the major S&P 500 index in 11 of 13 years, even as the fund ultimately reached $13 billion under management. Achieving outperformance for so many years with such a big fund is particularly difficult, which is why Lynch enjoys a strong reputation on the Street.

Lynch has also written and co-written several best-selling books about investing, which continue to excite readers thanks to their easy-to-apply investment methodology.

Here are three key thoughts about investments from Lynch.

1. Do your homework and select your investments wisely
Lynch famously said,"The person that turns over the most rocks wins the game. And that's always been my philosophy."

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Source: Businessinsider, Peter Lynch.

This is just another way of saying, have high discriminatory investment standards and be extremely selective. If you are looking for undervalued stocks, you must do the homework and turn over many stones to find the hidden gems that have the potential to deliver outstanding returns.
 
Don't buy what everybody else buys. Look for value off the beaten path in areas of the stock market that the mainstream investor shuns.
 
2. Don't try to be a market timer
According to Lynch: "When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30. You just don't know when you can find the bottom."

A lot of high-value advice here: Many investors try to time the market by forecasting peaks and bottoms of stock prices, or even the stock market itself. Don't waste your time here: Nobody can credibly claim to be able to accurately forecast future events over long periods.
 
Instead, do your research homework (see No. 1) and invest for the long term. Timing the market is a loser's gamble.
 
3. Get rid of your gambling attitude
In Lynch's words, "Although it's easy to forget sometimes, a share is not a lottery ticket ... it's part-ownership of a business."
 
Sad to say, but many people who "invest" in stocks really don't think like owners; they are more like short-term renters of a business.
 
Lynch is pretty well on the same wavelength as Buffett on this one: Shares represent a stake in an actual business, one that you would want to succeed over the long run. The erratic price movements seen every day on a stock ticker board have the potential to distract you from the bigger picture and seduce you into trading.
 
Put simply: Be serious about investing, don't chase the money, and don't trade.

The Foolish takeaway
Peter Lynch has been an extremely successful equity investor, and his investment philosophy contains some valuable nuggets for the investor today.

His investing approach is as timeless as it is direct: do your research, be willing to turn over a lot of stones to find value, invest for the long term, and don't mindlessly trade stocks.

This philosophy has produced Lynch's sterling returns over a long time period, and the application of such timeless investing principles might serve your returns just as well.

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