Peter Lynch: Investment Guru and Author

Peter Lynch wrote several texts on investing with co-author John Rothchild, including One Up on Wall Street, Beating the Street and Learn to Earn

Lynch also many other investment articles, but perhaps more famously coined some of the best known investment and stock market sayings and quotations. His two most famous ideas that are often quoted are:

Invest in what you know

ten bagger - a stock that grows to ten times its purchase price

Private Investors can outperform professionals:

- Unconventional stock-picking

- Don't have to follow institutional rules

- they can avoid snap judgements

- they can buy small cap stocks (which is more difficult for large funds) and this is where multiple-baggers come from

- Take time to understand every stock in the portfolio

- Don't have to follow trends

- Buy boring unpleasant companies at bargain prices

Characteristics of good niche stocks"

- Strong Economic franchise:

- Slow growing industry, fast growing company

- limited competition

- high barriers to entry

- scope for growth

- simple business

- Owner Orientated management:

- penny pinching management

- good labour ralations

- surplus cash-flow returned to shareholders

- stock ownership by managers and directors

- financial strength:

- strong balance sheet

- earnings per share growth and sales consistency

- free cash-flow

- low inventory growth

- Low Price

- low price/earnings (P/E) ratio

- boring business

- little interest from fund managers

What to Avoid

- Market Timing

- Technical Analysis

- Macro Economic Analysis

- hot stocks

- pulling out the flowers and watering the weeds

- selling losers and holding winners automatically

- stop-losses

- being a naive contrarian

- Derivatives

- regarding other investors successes as your loss

- playing catch-up

- being obsessed with liquidity

When to Sell?

- never sell when story remains strong (even if stock has risen or fallen since purchase)

- If fundamentals deteriorate relative to price, then sell

Other portfolio anagement factors

- don't diversify if you can no longer maintain a good knowledge of each investment (3 to 8 stocks up to a maximum of 12 stocks)

- Continue to monitor the story. If fundamentals remain and stock falls, buy more