X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Lessons from Peter Lynch - I - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Oct 16, 2012

    Lessons from Peter Lynch - I

    In this age of information overload, picking the wheat from the chaff is difficult. And that is so true in the world of investing. Hot stock tips, recommendations and run of the mill research reports leave a common man clueless as to where to begin, what to follow and what to ignore.

    And here to his rescue is Mr. Peter Lynch, the man who believes that 'Everyone has the brainpower to follow the stock markets. If you made it through fifth-grade math, you can do it'.

    Invest in what you know

    It is human nature to discount what one already knows, and put a premium to what is unknown and esoteric. That perhaps is the biggest irony as far as investing is concerned. Because this behavioral pattern makes one ignore the basic tenet of investing - Invest what you know/understand.

    Keep your eyes and ears open

    And it really is as simple as it sounds. The first step to investing is screening stocks. And the power of common knowledge at this stage can help you get that 'multibagger' - a term made famous by none other than Mr. Lynch. It's all about keeping eyes and using a bit of logic. Next time you visit a shopping mall, keep an eye for the products that are popular and attract mob. The next step would be to check out if the company making the product is listed. Keep an ear open for what a direct consumer has to say about a product. For every stock has a company tagged to it, and each company is associated with either the products or services. So, the starting step to stock analysis can be as simple as product/service analysis for which one needs not be a financial expert. The point is well validated when applied to stocks of companies associated with popular products such as Titan Industries (10 years CAGR is 52% versus 20% returns of Sensex) or Bata India's (10 year stock price CAGR returns 40% versus 20% CAGR returns of Sensex) or VIP Industries (10 year stock price CAGR returns 38% versus 20% CAGR returns of Sensex).

    Source: Ace Equity, Equitymaster


    Your edge over a fund manager

    Investing is more of an art combining logic than numbers and statistics. It is the power of common knowledge that counts. And as far as that is concerned, a common investor is as good as or may be even better than a fund manager. Even if you can pick up one multibagger, it can make a huge positive difference to your small portfolio. So much so that you can afford to sleep a bit on the rest and still outdo the markets and the experts. And that's your advantage over a mutual fund manager. This is because while a multibagger can make a huge difference to your 'small' portfolio, the economies of scale are unlikely to work the same way for your fund manager.

    Hence before becoming an investor, step into the shoes of a customer and try to know the potential of the product. Over a period of time, you will know what's good and what isn't, what sells and what doesn't.

    The common perception is that best investment ideas are a rare commodity that gets exchanged amongst privileged people surrounded by stock quoting terminals. But the fact is - it is the ground level knowledge that counts. You just need to be alert and use common sense to make use of this knowledge.

    Using this approach, you will avoid falling for recommendations blindly. And that is likely to pay off in the long run. It will also keep you shielded from the herd mentality that more often than not leads to losses, and at times when right, limits the gains .

    Some caveats....

    So far, the impression that one gets is that what is popular today and has the potential to remain so could be a good option. However, there is nothing sacrosanct about it. And what can be better example to prove this than Facebook that despite being immensely popular (and holding the promise to remain so) has not been a smart investment. So how can we avoid falling for such stocks? We will know more about it in our next article.

    Lessons from Peter Lynch - Series - Next article | All articles

      Richa Agarwal (Research Analyst), Managing Editor, Hidden Treasure has over 7 years of experience as an equity research analyst. She routinely scours the small cap universe for fundamentally strong companies trading at attractive prices. Having degrees in both finance as well as engineering has served her well in analysing business models across the small cap space. Richa is also the specialist in our team for the Oil & Gas sector.

     

     

    Equitymaster requests your view! Post a comment on "Lessons from Peter Lynch - I". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 18, 2017 (Close)

    MARKET STATS