Yahoo Finance 6 Things You Can Learn From the Strategy of Mega-Millionaire Investor Peter Lynch
Who is Peter Lynch? For those of you who haven’t heard of him, it’s time to get acquainted with the legendary investor. From 1977 to 1990, Lynch was the manager of the Magellan Fund at Fidelity Investments. During his 13-year tenure, Lynch averaged a 29.2% annualized return. Let’s break down what that means. If he made a $10,000 investment in 1977, it would’ve grown to about $280,000 by 1990. Frankly, that’s astonishing. Today, Lynch has an estimated net worth of $450 million.
Read Next: I’m a Self-Made Millionaire: 5 Stocks You Shouldn’t Sell
Learn More: 4 Genius Things All Wealthy People Do With Their Money
The bulk of Lynch’s fortune was made through investments. What did he do, and what can the average investor learn from his tactics? Financial experts weighed in on the matter and provided six crucial tips.
Wealthy people know the best money secrets. Learn how to copy them.
Buy What You Know
It sounds obvious, but many investors don’t follow the advice of buying what they understand when it comes to purchasing stocks. Like Warren Buffett, Lynch insists that you invest only in businesses and sectors with which you are deeply familiar. This is perhaps his most golden nugget of wisdom.
“Peter [is] known for promoting the common sense mantra to ‘buy what you know,'” said Stephen Kates, CFP, principal financial analyst at RetireGuide and Annuity.org. “Rather than buying the next popular stock that happens to capture the interest of investors, aim to invest into companies that you like and understand. Lynch [suggests] that average investors are better off focusing on a select few companies that they can monitor attentively.”
Find Out: 3 Types of Investments Predicted To Plummet in Value in Summer 2024
Learn To Read a Company Balance Sheet
“Behind every stock is a company. Find out what it’s doing,” Lynch said. To stay on top of your investments and navigate new ones, you should learn how to read a company balance sheet.
“Following the ups and downs of a company’s business will give you a good idea of whether they are improving or declining,” Kates said.
Arguably your best bet here is to get a somewhat formal education. You don’t need to go back to school to do this. Harvard Business School Online offers a number of finance and accounting courses to grow your investing career. You will have to pay for these (they cost $1,850 each) and dedicate time (five to eight hours a week for up to eight weeks), but the return on investment could be significant.
Spend Tons of Time Doing Research
Speaking of time, you’ll need to set aside a significant chunk of it doing your homework on investment opportunities. This is part of implementing the “buy what you know” philosophy.
“Be prepared to spend a lot of time doing the research on the companies you are going to buy,” said Peter Tanous, chairman emeritus at Lynx Investment Advisory. “Most investors aren’t prepared to do that. When I run into people who say they invest on their own, I tell them the odds are stacked against them. Why, they ask? Well, answer this question: If you’re going to pick stocks on your own, how much time are you going to spend on the research? An hour or two a day or a week? Compare that to the professional money manager who spends eight hours a day doing the same thing.”
Use Your Brain and Your Stomach
Masterful investing requires both intelligence and, to some degree, emotional detachment. As Lynch said, “The key to making money in stocks is not to get scared out of them.”
“Use your brain and stomach: You need your brain to find the right companies, but you need to stomach the risk and volatility during bad times,” Kates said. “You can’t invest well without both.”
You Don’t Need a Team of Analysts Behind You To Build Wealth From Investing
Let’s be real. Lynch, though a genius investor, didn’t get to where he is completely on his own. As Kates noted, he had a team of professional market analysts during his groundbreaking time at Fidelity, enabling him to cover tens of hundreds of stocks. This isn’t tenable for the average American investor, but you also have more financial information at your fingertips than Lynch did decades ago, before the takeoff of the internet.
“The accessibility of information today is exponentially higher than it was during the 1980s and 1990s,” Kates said. “At the time Lynch was managing money, they had to wait for investor reports in the mail. Now investors can find nearly instantaneous data and analysis on thousands of stocks at the touch of a button.”
But don’t get carried away here; be sure to stick to the sage advice of investing in only what you deeply understand and can dedicate time to monitoring.
“Lynch still recommends understanding a company balance sheet and weighing your investments against the risks inherent in the business and the market as a whole,” Kates said. “Stock investing is a long-term project and requires constant time and attention to do well.”
Accept That You Won’t Do This Perfectly
Lynch has built a fortune and a legacy by investing with intelligence and commitment. But that doesn’t mean he seized every single awesome opportunity. Don’t expect that you will, either.
“You will miss opportunities,” Kates said. “No one is perfect, and you will make mistakes, either investing in the wrong companies or missing the right ones. Focus on consistency, and you will succeed.”
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 6 Things You Can Learn From the Strategy of Mega-Millionaire Investor Peter Lynch
