Course 507: Great Investors: Peter Lynch
Stick to What You Know
In this course
1 Introduction
2 Stick to What You Know
3 Do Your Research and Set Reasonable Expectations
4 Know the Fundamentals
5 Ignoring Mr. Market
6 The Bottom Line

Investing in what you know about and understand is at the core of Lynch's stock-picking approach. This particular investment principle served Lynch very well in practice. Lynch invested only in industries he had a firm grasp on, such as the auto industry. That's what led him to Chrysler (today part of DaimlerChrysler DCX) back in the early 1980s. Chrysler was getting beat up by the competition and was near bankruptcy--it seemed the carmaker would never regain its footing. But after seeing prototypes of a new thing called a minivan, Lynch made Chrysler one of Magellan's top holdings. It paid off, and Chrysler more than tripled in price while Magellan owned it.

Moreover, Lynch has pointed out that you will find your best investment ideas close to home. He claimed, "An amateur investor can pick tomorrow's big winners by paying attention to new developments at the workplace, the mall, the auto showrooms, the restaurants, or anywhere a promising new enterprise makes its debut." For example, Lynch said that after his wife raved over the fact that Hanes Co. (now owned by Sara Lee SLE) conveniently sold its L'eggs pantyhose in grocery stores, he figured the company was on to something good. His hunch was right. Hanes' stock rose sixfold while Magellan held it. Lynch's main point here is to look around you, because that's where you are most likely to find your winners.

Next: Do Your Research and Set Reasonable Expectations >>

Print Lesson |Feedback | Digg! digg it
Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores.
Copyright 2015 Morningstar, Inc. All rights reserved. Please read our Privacy Policy.
If you have questions or comments please contact Morningstar.