Peter Lynch, the former manager of Fidelity’s Magellan Fund, is perhaps less well-known than Warren Buffett by everyday investors. Lynch is one of the best fund managers of all-time, however, and his investment tenets are in the same light as Buffett’s. Lynch’s investment style at its core was no-nonsense, rooted in value, and characterized by finding a match between the quality of the underlying company and the quality of its stock. In essence, great companies do not always translate into great stocks as value can deviate from price. With that in mind, let’s take a look at 3 lessons that all investors can learn from one of the greatest investors ever – Peter Lynch.
1. Look for companies with products or services that are not riding a fad. If you are an investor in every sense of the word, then you are not trying to profit from short-term moves in stocks or faddish trends. If you are investing for retirement, then companies with sustainable products that will be used for generations are more conducive to your investment goal. Think along the lines of Coca-Cola (KO), Pepsi (PEP), Johnson & Johnson (JNJ), and Procter & Gamble (PG). These companies have been around for a long time and will likely still be around 10, 20, or 30 years down the road.
2. Companies with long-term comparative advantages are best for long-term investing. Who would have thought? Companies like the ones mentioned above have long-term advantages derived through trade secrets, patents, brand goodwill, and customer relationships. Think about it. If a new product comes out, and it’s endorsed by Coca-Cola – wouldn’t you be more likely to try it? If you were thinking about using a new product for your baby or child, would you rather try one from Johnson & Johnson or roll the dice with a new company? Such companies have built goodwill with their customers that allow them to wade through their tough times as evidenced by Johnson & Johnson with recalls and Coca-Cola with ill-perceived product changes.
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