Legendary investor, Peter Lynch, is widely regarded as one of the best money managers of our time. Investors might want to learn a thing or two from him.
Lynch averaged an astonishing 29.2% annual return as manager of the Magellan Fund. During his tenure, assets under his management increased from US$18 million to US$14 billion.
The famed fund manager lives by the philosophy of “investing in what you know” and holds the belief that an individual is more capable of making money from stocks compared to a fund manager. That is because the common investor will be able to spot good investments in their daily lives. Lynch is also famous for popularising the “GARP” stock investment strategy which stands for growth at a reasonable price. This approach involves investing in high-growth companies that were trading at reasonable valuations, and advocating buying stocks with a price-earnings growth ratio below one.
During his career, Lynch has doled out advice to investors through various media outlets. With that in mind, we picked out three quotes that all investors can learn from.
“The typical big winner in the Lynch portfolio (I continue to pick my share of losers, too!) generally takes three to ten years or more to play out.”
Patience is key in investing. As investors, we must know that our investments will not be overnight successes. It takes time for the investments to grow. If we are able to find companies that are consistently increasing its revenue and earnings each year, its share price will eventually follow suit.
“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.”
Volatility is part and parcel of the game. As investors, we have to accept that. From time to time our investments will depreciate, often, for no apparent reason at all. We need to numb ourselves from the emotional aspect of investing and ensure that we make the right decisions based on logic and fundamentals.
I have certainly had my fair share of share price scares, sometimes even just a few days after purchasing a stock. However, the stock price declines has not stopped me from investing. I know that if I stick to the game plan, the long term odds are very much in my favour.
“If you can follow only one bit of data, follow the earnings—assuming the company in question has earnings. As you’ll see in this text, I subscribe to the crusty notion that sooner or later earnings make or break an investment in equities. What the stock price does today, tomorrow, or next week is only a distraction.”
Over the long term, the value of a stock is dependent on its future earnings. As investors, our main focus should be on assessing the earnings potential of a company instead of the price movements of its stock.
Too often, investors get caught up on trying to ride the hottest streaks or get distracted by stock price movements. It is essential that we put that we put aside these distractions and study the company’s fundamentals to form the basis of our investment, and we should care less about how its share price has performed in the past.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn't owns shares in any companies mentioned.