4 Critical Investing Lessons Learned From Peter Lynch

Peter Lynch is one of the most successful institutional investors of all time.

As the portfolio manager of Fidelity Investments’ Magellan Fund between 1977 and 1990, Lynch averaged a 29.2% rate of return. Further, Lynch beat 99.5% of all other mutual funds during the last five years of his tenure.

A 29.2% rate of return is fantastic for a single year, let alone a 23-year period. For context, the following diagram shows the growth of $1 compounded at Peter Lynch’s average rate of return over the course of his tenure at Fidelity.

Remarkably, $1 invested in Lynch’s fund from the beginning would have turned into $362.27 when he retired 23 years later. The actual returns of his fund would look different, because his returns had some volatility, but the end result would be the same.

Aside from his fund management responsibilities, Peter Lynch was also passionate about educating people on investing.

His book One Up on Wall Street, where he outlines his belief that individual investors have the ability to beat the performance of professional money managers, has become a favorite among the investment community. Lynch has also authored two other books: Beating the Street and Learn to Earn.

Despite his illustrious career as both a fund manager and an author, Peter Lynch’s investment philosophy was quite simple and can be summarized into four elements:

Each will be discussed in detail below.

Do Your Research

Investing is a research-heavy endeavor. Peter Lynch recognized this and was a tireless worker during his tenure as the Magellan portfolio manager.

This persistence is well-defined in the quote below.

“The person that turns over the most rocks wins the game. And that’s always been my philosophy.” – Peter Lynch

By ‘turning over’ many rocks and investigating many stocks in different locations and industries, Lynch maximized the probability of finding companies with compelling investment prospects.

This strategy was evident in Lynch’s investing approach. His portfolio employed a wide degree of diversification (more on that later) at both the sector and geography levels. Lynch looked to all areas of the financial markets as a source of investment returns.

Many individual investors might think that this research-based approach is beyond them. It’s one thing to realize that research is an important component of a successful investment philosophy, but it’s another to have the chops to perform the analysis themselves.

This belief stems from the perception that investing is complicated. For evidence of the intricacies of investing, here are 101 financial metrics and ratios that can be implemented in stock analysis. Luckily, not all of those metrics are required to be successful in the markets.

Peter Lynch believed that no one was intellectually incapable of investing in the financial markets. One of Lynch’s most famous quotes describes his perspective on the minimal mathematical ability required to be successful in the markets.

“Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.” – Peter Lynch

Further, Lynch didn’t just believe that anyone was smart enough to participate. He believed that individual investors can use their personal expertise to outperform institutional money managers.