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What's your investment story?

Peter Lynch's wisdom: How an investment logbook can redefine your portfolio's manageability

What’s your investment story?Anand Kumar

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Over the last few weeks, I have done a substantial (and periodic) re-reading of my favourite investment author, Peter Lynch. My first reading of Lynch was soon after I finished college in 1990. Compared to 2023, that was a very dull time and acquiring a copy of Peter Lynch's book 'One Up on Wall Street' was a very exciting thing for me. In those pre-internet days, the flow of information was much slower and harder and this great book had just come out the year before. It was hardly well-known at the time, especially in India. In fact, why only at that time, even now it has actually been read by relatively few investors even though many have heard of it. Lynch's book was like a primary education for me as an investor.

Even now, more than three decades later, I come across something new and useful every time I reread Lynch. Recently, while rereading a long article that he wrote in 1997 in 'Worth' magazine, I noticed this tip: With every stock you own, keep track of its story in a logbook. Note any new developments and pay close attention to earnings. Is this a growth play, a cyclical play, or a value play? Stocks do well for a reason and do poorly for a reason. Make sure you know the reasons.

For those who are not familiar with Peter Lynch, the curious thing they will first notice is that even though he became famous for his incredible track record as a fund manager, all his writing is about stock investing. From 1977 to 1990, Peter Lynch, while managing the Fidelity Magellan fund in the US, generated an annualised return of 29.4 per cent, making it the best-performing fund in the world. This performance made Lynch a legend in the world of investments, but what truly cemented his role for posterity was the books and articles he wrote about equity investing.

Let's get back to his tip about keeping a log of your investments because even though he talks in terms of stocks, this is applicable to all investments. Note that he's not talking about an accounting record - that you can download anyway for any investment that you have made. He is talking instead about the narrative, the story of your investment. In investing, every decision to buy or sell should ideally stem from a well-thought-out rationale. It's not just about numbers; it's also about the subjective, qualitative judgements one makes. This is where the significance of maintaining an investment logbook comes into play. For every investment you acquire, dedicating a section of your logbook to its story can be a game-changer.

As Lynch points out, the stock has a unique story. It might be entering a growth phase, experiencing cyclical fluctuations, or perhaps it's undervalued. By logging these perspectives, you create a living history of your investments, offering a clear picture of why you believed in them in the first place. As you continue to monitor your portfolio, you can update this narrative with new developments. All these factors can influence your original investment thesis. If there is a written rationale, you will be forced to recognise any changes that have taken place.

All investments prosper or falter for distinct reasons. The highs and lows, the surges and the slumps, they all have underlying causes. Your logbook serves as a constant reminder of these reasons, helping you make informed decisions. It's not just about tracking the performance; it's about understanding the 'why' behind every movement. So, make your logbook your investment ally, ensuring that with every move in the market, you're not just reacting but responding (or choosing not to respond) for a clear reason that you are conscious of.

With a log of this kind, it would be impossible to just sort of drift along and have stagnant investments that you've just been ignoring. One always hears the business and investment mantra, 'What you can't measure, you cannot manage'. Here's another one to add to it: If it's not recorded, it can't be managed.

Suggested read: Invest the Peter Lynch way

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