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The art of beating the street

Peter Lynch asserted that in the investment world the individual investor has an edge over Wall Street experts


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Peter Lynch was the legendary portfolio manager of the Fidelity Magellan Fund from 1977 to 1990. He multiplied his corpus 28 times in 13 years. He wrote the highly popular One Up on Wall Street and Beating the Street. The essence of Lynch's method is 'invest in what you know'. His technique asserts that an individual investor can beat a fund manager at investing because he is able to spot investments in his day-to-day life before Wall Street can. He used measures of growth and valuation and preferred companies with low institutional holdings and little analyst coverage.

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In his bestselling book, One Up on Wall Street, Lynch wrote that he categorised companies in the following types: slow growers (large, mature businesses that pay regular dividends), stalwarts (companies consistently growing by 12 to 15 per cent), fast growers, cyclicals and asset plays (companies with huge assets).
Lynch practised growth-at-reasonable-price style of investing. He also popularised the price-to-earnings-growth (PEG) ratio and the 'multi-bagger' terminology.

Modified Lynch filters for Indian markets
1. 5-year earnings growth of more than 15 per cent but less than 30 per cent
2. Debt to equity of less than 1
3. ROE of more than 15 per cent
4. P/E less than 15
5. Institutional holding less than 30 per cent

Do read the other stories in this series.

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