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3 Investing Lessons I Learned From Peter Lynch

Peter Lynch, the former manager of Fidelity’s Magellan Fund, is perhaps less well-known than Warren Buffett by everyday investors. Lynch is one of the best fund managers of all-time, however, and his investment tenets are in the same light as Buffett’s. Lynch’s investment style at its core was no-nonsense, rooted in value, and characterized by finding a match between the quality of the underlying company and the quality of its stock. In essence, great companies do not always translate into great stocks as value can deviate from price. With that in mind, let’s take a look at 3 lessons that all investors can learn from one of the greatest investors ever – Peter Lynch.

Peter Lynch was one of the greatest investors ever.

1. Look for companies with products or services that are not riding a fad. If you are an investor in every sense of the word, then you are not trying to profit from short-term moves in stocks or faddish trends. If you are investing for retirement, then companies with sustainable products that will be used for generations are more conducive to your investment goal. Think along the lines of Coca-Cola, Pepsi, Johnson & Johnson, and Procter & Gamble. These companies have been around for a long time and will likely still be around 10, 20, or 30 years down the road.

2. Companies with long-term comparative advantages are best for long-term investing. Who would have thought? Companies like the ones mentioned above have long-term advantages derived through trade secrets, patents, brand goodwill, and customer relationships. Think about it. If a new product comes out, and it’s endorsed by Coca-Cola – wouldn’t you be more likely to try it? If you were thinking about using a new product for your baby or child, would you rather try one from Johnson & Johnson or roll the dice with a new company? Such companies have built goodwill with their customers that allow them to wade through their tough times as evidenced by Johnson & Johnson with recalls and Coca-Cola with ill-perceived product changes.

3. Find companies that are investing in themselves. This could be in the form of companies expanding in a prudent matter through capital investments or buying back their shares from selling investors. Wouldn’t you want to buy a stock that the company itself was buying? What if you found out that the company’s management and insiders were selling the company’s stock – would you still want to buy it? I wouldn’t. Sure – companies can overdue capital investing and share buybacks, but I would rather have that than the selling. Always find out what people who know the most about a company are doing before investing in that company. You’ll likely not regret it.

These lessons from Peter Lynch and from other great investors like Warren Buffett are usually characterized as common sense. In investing, however, people can get caught up in the short-term trends and mistake gambling and speculating for investing. Investors with a long-term mindset and with long-term goals in mind like retirement or education will likely benefit most from the points made here. What do you think? What are some investing lessons you have learned over the years?

- Andrew Sebastian

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