Warren Buffett is known for his long-term investment performance. Since the 1960s he’s achieved a compounded annual return of around 20%.
But in the 1970s and 1980s, Fidelity Magellan fund manager Peter Lynch beat Buffett’s performance. Over a 13-year period, Lynch delivered a compounded annual return of just over 29%.
And to put that in perspective, a £2,000 investment in the Magellan fund in 1977 when Lynch took control would have grown to around £56,000 13 years later. So that investment performance is well worth having.
Lynch wrote a few books discussing his strategy and tactics. And I’ve taken the following tips from Beating the Street. I think they really hit the nail on the head for the stock market conditions we have today. Here’s what he said:
The wisdom of Lynch
1) “In the long run, a portfolio of well-chosen shares and/or funds can outperform most assets classes. However, a portfolio of badly chosen share investments underperforms cash under the mattress.”
Over the long haul, the stock market’s performance has beaten all other major classes of asset, such as property, bonds and cash savings. But Lynch cautions us to choose shares carefully and after thorough research.
2) “There’s always an over-looked company on the stock market, where share prices are undervaluing its prospects. All you have to do is discover it.”
Lynch didn’t achieve investment outperformance without working hard to find quality businesses with decent prospects for growth and a fair valuation.
3) “Ignore economic predictions and follow what’s happening in the companies you own.”
I reckon this advice is perfect for the conditions we have today. The general economic and geopolitical news has been grim. Share prices have been smashed to the ground. But despite all of that, companies keep posting good trading results and upbeat outlook statements. I think such a combination of factors spells opportunity for me.
4) “Trade shares according to the companies’ fundamentals and not according to wider concerns, as there’s always a source of external worry.”
I’m following Lynch by focusing on the news flowing from my investee companies. And I’m not wasting too much time listening to the general news. Shares look ahead, but the general news reports events that have already happened.
5) “Stock market declines are common: they are great opportunities to buy bargain shares.”
We’ve just seen a brutal bear market for many stocks and shares. So, I reckon this advice from Lynch is useful now. I’d aim to buy quality businesses with decent growth prospects. And I’d then hold for the long term as the underlying business progresses.
A great resource
Lynch took his own advice and used it to deliver outstanding gains. However, all shares can go down as well as up. And companies can suffer unexpected operational challenges at any time. Furthermore, there’s no guarantee of investment success for me even if I follow Lynch’s tips.
However, that won’t stop me aiming to take advantage of today’s attractive stock market conditions. And I think Lynch’s books are a great resource to help me in my quest to build wealth from stocks and shares.
