If there is one legendary investor who not just beat the market but destroyed it, it is Peter Lynch.
Lynch ran Fidelity’s Magellan Fund in the US for 13 years, from 1977 to 1990. During this period, he beat the US stock market index S&P 500 in 11 years. His average annual return during this period stood at a mind-boggling 29%.
It means that every US$ 1 invested in his fund in 1977 grew to more than US$ 27 by 1990.
Fortunately for us, Lynch has laid down his secrets in two great books that every investor must own and read several times – One Up on Wall Street, and Beating the Street.
His most famous investment principle is simply – Invest in what you know.
This simple principle echoes well with small investors who generally have this false belief that they need to learn complicated ways of analysing stocks or read endless financial reports to pick some great stocks.
Anyways, here is one of the very few interviews that Lynch gave where he talked about stock market crashes, his first stock, being hired by Fidelity, and insight into how he selected stocks.
Here is how Lynch replies to a question about the secret of his success…
Well, I think the secret is if you have a lot of stocks, some will do mediocre, some will do okay, and if one of two of ’em go up big time, you produce a fabulous result. And I think that’s the promise to some people.
Some stocks go up 20-30 percent and they get rid of it and they hold onto the dogs. And it’s sort of like watering the weeds and cutting out the flowers. You want to let the winners run. When the fun ones get better, add to ’em, and that one winner, you basically see a few stocks in your lifetime, that’s all you need.
So true and the big one is how to identify such winners.
Apart from the diligence and care (which is a pre-requisite) it is partly luck as well, for however much you may research /be careful of, an event can just wash all logic out of the window.
I second your thoughts, Sudhir.
Hi Vishal,
How do u rate Adani’s.
Are they fair as a management and promotor’s group?
Thanks in advance.
Hi RichFellow, I have never researched the company so have no view on their management etc.
Hi Vishal,
We all will be happy if u could write couple of blogs in a month about health.
When i say i am 35, and time horizon for my investments is 30 years, it is very important that one should be in good health to enjoy the fruits of investments at age of 65.
If the health deteriorates at 65 what is the use of wealth?