Quick Facts
- Managed the Magellan Fund and averaged 29% return
- Only invest in what you understand
- Common sense, intuition and strong company earnings
- Fast growing companies in slow growing industries
- Look for companies with low institutional ownership levels
The great Lynch
Peter Lynch uses basic principles in his investment strategy. He believes that the individual investors are better than wall street because the latter cannot invest in small-caps that are unknown to analysts.
Unlike Buffett, Lynch likes smaller companies that have high growth potential. He focuses a great deal on the PEG ratio to look at how much expectation has been built into the stock. High growth companies with high PEG ratio (2 or more) implies that Wall Street has already priced in the growth, leaving a very small margin of safety.
Like Buffett, he is also a avid supporter of long term investing as stocks are relatively predictable over 10 – 20 years. He favors companies with a strong cash position and low debt to equity ratios. Both Buffett and Lynch love the compounding power of investing.
Lynch invented the commonly used term “tenbagger” to describe a stock that has risen 1000%.
“tenbagger” stocks
Recently, BIDU has achieved the “tenbagger” award.
We will try to find this decade “tenbagger” stocks by using the wisdom that Peter Lynch has shared with us.
To do this, we have to find stocks with high growth and low PEG ratio (preferably below 1.1)
1 comment:
Investing like Warren Buffett and Peter Lynch cannot be easy because of the fact that they uses the 'intrinsic value' theory to value stocks. Believe me this is not at all easy. Peter Lynch has his own way of evaluating growth stocks which I am sure will not be as easy.
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