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6 Traits of A Winning Stock

Peter Lynch is one of the most recognisable names in the investment world.

As manager of the Magellan Fund between 1977 and 1990, Lynch’s average returns was an astounding 29.2% a year. It’s a remarkable record, by any account. As such, investors might have a thing or two to learn from the investing maestro.

Thankfully for investors, he also penned two books, namely “One Up on Wall Street” and “Beating the Street”. Within the books, he highlighted the key tenets of his winning investment approach. Here are six traits that Lynch looks for (for the first three, go here):

Trait 4: The company operates in a niche area that is difficult for competitors to enter

Lynch believes strongly in finding companies that have competitive advantages over its counterparts.

For instance, a company that produces specialised high-technology equipment with patents would be difficult to obsolete. It would also be extremely difficult for competitors to enter the industry due to the expertise requirements.

Trait 5: The company produces a product that people tend to keep buying during good times and bad

Another Lynch favourite is defensive stocks.

In short, he prefers stocks that have the ability to continue performing well across all economic climates including downturns. This group of companies might come from the healthcare industry, supermarket space, and other industries that provide essential goods that people could need daily.

In Lynch’s mind, the defensive company’s performance was usually easier to predict, and could act as a good hedge during bear markets.

Trait 6: The company is a user of technology

Lynch might not be a fan for technology stocks, but it does not mean that he avoids technology.

In fact, he is fond of companies that use technology to improve its competitive position. These companies were more likely to be adaptable as it would use technology to expand their business, or to keep costs low.

For this set of companies, Lynch is looking for companies that put a high emphasis on research and development. In his mind, companies with an eye for the future could be a candidate for outperformance in the future.

By looking out for the same traits that Lynch prefers, we might increase our chances in finding good long-term investments at bargain prices. We will more traits to share tomorrow, so stay tuned!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.