Peter Lynch has one of the best track records on Wall Street of all-time. You may have heard quotes from his best selling books, but you probably haven’t heard some of these more obscure investment quotes by Peter Lynch in his monthly columns.
Today we’ll look at some of his best gems in the 1993-1999 time period, in several published columns from Worth Magazine, shortly after his retirement from Fidelity in 1990.
A little background on Peter Lynch before we dive in…
- He was a workaholic: During his time as a fund manager, Lynch spent an extraordinary amount of time fielding calls from analysts, visiting management, and reading annual reports. He famously worked ridiculous hours, which contributed to his early retirement.
- He was a generalist: Instead of going deep with his stock research, he went wide and looked at thousands of stocks. That’s not to say that Lynch didn’t do deep research on his stock picks, but he didn’t specialize in any one industry. At any time his portfolio had 100s or 1000s of stocks.
- He turned his portfolio over a lot: If I remember correctly, I once saw that Peter Lynch’s portfolio turnover was over 300% much of the time. To say he was constantly monitoring his investments would be an understatement; it fit in with his work ethic perfectly.
- He believed the average investor could do great: If you haven’t read Peter Lynch’s fantastic books, you might not know that he thought everyone could find a way to make great money in the stock market. By simply “buying what you know,” you could have a unique edge over others.
Now that we have some context on the great Peter Lynch and his fantastic track record in the stock market, let’s look over some of his great investment quotes and think about how they could apply to our own portfolio decisions and stock picking.
1—The Investor Has an Edge Over Wall Street
In this 1993 column, Peter Lynch talks about how advice from professionals on Wall Street is actually detrimental to the average investor, and how investors can give themselves an additional edge by zigging while others are zagging.
Wall Street is heavily incentivized to follow each other into the same kinds of hot trends and trades; investors have little career risk or pressure to do the same and could probably do much better by sticking to what they know and ignoring the rest.
Peter Lynch famously said in his Beating the Street book that his wife helped him find a great stock idea by simply telling him about the incredible lines at this one retail store.
No reason why the average investor can’t do the same.
2—Investing in Uncertain (Biotech) Stocks
As Lynch relates in this June 1993 article, biotech companies have several problems. For one, they don’t show earnings for a long time. Secondly, so many biotech companies fail at eventually making profits, because so many products fail FDA approval. Third, even the experts can’t reliably guess which drugs will pass these incredibly stringent tests and which will fail.
Combining all of these factors, most investors are probably well served to stay away from biotech. Funny how the same logic that applied in the 90’s also still applies today, almost 40 years later.
Lynch is not alone in preferring to avoid this kind of uncertainty; another investor with a great track record named Terry Smith has shared his reasons for avoiding biotech/drug manufacturers, for many of the same reasons that Lynch shared decades ago.
3— Investing in Cyclical Stocks
I think those first two sentences sum up how Lynch feels about cyclicals. He likes the stock(s).
But there are some important things to remember with these kinds of stocks—mainly that it really depends when you buy them. He explains:
I think the key thing to underscore here is that cyclicals do really well during an economic recovery. This is when all stocks tend to be the cheapest.
The problem is that timing an economy recovery perfectly is really difficult, so you should have the fortitude to survive continuing falling prices until things turn around.
That said—trust me, when the cyclicals do pop, they pop fast. So rather than try and time when these stocks explode, which is impossible to do consistently, just buy when cyclicals appear cheap and hold them through the recovery. You’ll probably get some downside exposure, but that eventual upside is likely to whoop the S&P in the months to follow.
If you need additional encouragement to hold (or buy) these cyclicals as a downturn drags on, Lynch has this great quote:
He speaks more on this topic, this time relating it to the average investor’s “edge”:
I love that brilliant overview. Sometimes, as average investors, we discount our experience and observations as we experience changes “on the ground,” since we are not insiders at massive multi-national corporations.
But we can sometimes be right smack in the middle of fundamental changes in pockets in the economy, and if not ourselves, then sometimes our friends and family.
That’s not to say that we should rely solely on these observations; Peter Lynch would never advocate buying a stock just because you observe what you appear to be greatness.
Rather, look at these observable trends and combine them with solid fundamental analysis of companies, and use the observations to confirm what you see in the financial data of these companies, and use all of that to be bullish on an idea even when Wall Street continues to be bearish on it.
More often than not, that’s where the investor’s edge can come from—but it requires courage to go against the crowd and trust your analysis.
4— Buying During a Disaster
In the early 1990’s, California had a crisis. The real estate in Orange County in particular, my hometown, went through an extremely strenuous time with crashing prices and panic.
What some people might not remember was that shrewd investors like Warren Buffett and Charlie Munger saw this collapse as an opportunity, and loaded up on a company with huge exposure to that area (Wells Fargo).
Needless to say, that was a fantastic investment for Buffett and his shareholders.
In this column by Peter Lynch in 1994, he mentions several companies which he saw as great opportunities at that time, relaying his logic on the overall theme in this way:
5— Holding on to a Great Stock Instead of Selling
If this story of an average investor finding phenomenal success in the stock market doesn’t inspire you, I don’t know what will.
Peter Lynch met this man named Charles Silk in 1992, and shares his story in 1994:
Lynch goes on to explain just how Charlie continued his conviction on this stock, that massive success we now remember as Blockbuster Video, even after Wall Street changed its tune on the company and believed that competition would eat away at its massive success.
But Charlie followed the numbers, and used his “Investor’s Edge” to visit the stores, and saw that there was still growth to come.
That knowledge and then confidence to hold helped Charlie multiply his money many times over. It really shows the power of how companies can grow and compound wealth in a significant way, and how much it can pay to think for yourself.
Note that this was way before the days that most people even had VCRs yet, and was many years before the company eventually went bankrupt.
Taking that story full circle can remind us that you should probably hold a stock longer than you’d think, but you can’t also always expect to hold a stock forever, as the business can change.
That’s again where your fundamental analysis of the company comes in.
6—Buying Quality Growth Stocks (at the Right Time)
In his masterful way, Peter Lynch explained again an easy way to determine when the right time is to buy quality growth stocks.
Like with cyclicals, it’s not all the time.
What I found particularly interesting is that of the growth stocks he mentioned then, many of them still did extremely well for many years. These are names like Home Depot, PepsiCo, McDonald’s, Gillette, Rubbermaid, and H&R Block.
And many of them grew not only earnings but also dividends. I noticed how there’s not much mention of sales growth, which is one of those buzzwords for many of today’s growth stocks.
Another valuable and practical lesson that all investors can take note of. When it comes to Peter Lynch and many of his great investment quotes, you might notice a common theme—great businesses matter, growth matters, but price (valuation) also plays a big role too.
Be cognizant of all of these things.
Post updated: 1/20/2023
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