Making a million could be easier if you invest like Peter Lynch

Looking to get rich from the stock market? This is one man you need to listen to.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you’re looking to make the most out of your time in the stock market, legendary growth investor (and author of the highly readable ‘One Up on Wall Street’) Peter Lynch is worth listening to. 

During his 13 years at the helm of the Fidelity Magellan mutual fund, the now-retired Lynch achieved a staggeringly good average annual return of 29%, growing the fund’s assets from $20m to $14bn.  

But Lynch has been more than just a master investor. Like Warren Buffett, he has been keen to pass on his wisdom to others. 

Don’t time the market, beat it

Lynch isn’t a fan of timing. He insisted that investors should forget about trying to predict where markets would be in the next week, month or year. Since economic wobbles come and go, he believes it is far better to exercise patience and focus on finding great companies to buy and hold for the long term — just the sort of talk we like at the Fool.  

Despite his aversion to timing, Lynch nevertheless believes that private investors are more than capable of beating the market thanks to being less constrained than professional money managers. Perhaps the best known of his suggestions is to buy what you know and understand. 

According to Lynch, some of the most successful investing ideas come from being a consumer. One famous (and highly profitable) example of this was when he invested in Hanes Corporation after his wife was complimentary about the L’eggs brand of tights that the former was test-marketing in its stores. While undertaking research, Lynch discovered that Hanes was the only major company to stock the growingly popular brand in supermarkets, making them more accessible to shoppers who didn’t visit department stores very often. He bought the stock which proceeded to six-bag before the company was taken over.

That’s not to say you can become a millionaire purely by investing in things you like. This, for Lynch, has been just the start of the process. Only after conducting a thorough analysis of a business, its financials and growth prospects should you consider buying a slice of it.

Lynch is also a big fan of diversification and during his investing career, frequently held more than a thousand stocks in the Magellan fund. While few private investors have the time or energy to research and assemble such a sizeable portfolio (Lynch was known as a workaholic), a lot of success in investing comes from recognising that not all of your picks will be successful. Holding 20 or so quality stocks, as opposed to just a couple, is a far more sensible approach when it comes to growing your wealth.

So, what doesn’t Lynch like? While all investing involves risk, Lynch has never been attracted to “long shot” companies — many of which clutter the junior market. As far as Lynch is concerned, it’s always better for investors to wait until a business has established itself before risking their capital.

Lynch also dislikes selling winners — something most of us do only too quickly. As far as he is concerned, investors shouldn’t attempt to improve their results by “pulling out the flowers and watering the weeds“. So long as we don’t become so attached to a great performing share that complacency sets in, the former Fidelity man believes in sitting tight, even if the company appears slightly overpriced.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »

Investing For Beginners

How I’d aim to grow my Stocks & Shares ISA from £20k to £1m

Jon Smith explains how diversification and focusing on sectors for the future can help grow his Stocks and Shares ISA.

Read more »