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Investment tips from a star fund manager
The reader gets a close ringside view of how the star fund manager went about buying and selling stocks. He learns what drives earnings in different industries.
If you are a novice and are looking for a fundamentals-based approach to investing, the smartest thing you can do is read Peter Lynch's books. In his heydays as a fund manager at Fidelity, Lynch was spoken of in the same breath as the likes of Warren Buffett. In his first book, One up on Wall Street, Lynch explained his approach to investing.
In his second book, Beating the street, he delves into the details of implementing this approach.
The book begins with Lynch lamenting the fact that even as the markets have been going up, Americans have been abandoning stock investing and moving into bonds and money market instruments. This coincidentally holds true of Indian investors today, who have forsaken stocks in favour of gold and real estate. So even as the markets are scaling new heights, most retail investors will not to partake of the gains.
In the second chapter, Lynch dwells upon the importance of will power in stock investing. A strong gut, he says, is a more important prerequisite for success in the markets than a sharp brain. He harps on the importance of holding on to your equity investments even when the economic climate turns adverse, as has been the case with the Indian economy for the last several years. One year it was buffeted by the shocks from the global financial crisis. Another year it suffered from high inflation, high fiscal deficit, high current account deficit, and sometimes, several of these maladies together. Last year the currency had nosedived. However, Lynch puts things in perspective: when things go wrong, corrective measures are initiated and eventually the economy does return to even keel. Instead of worrying about the economy, equity investors should be more gainfully employed focusing on the quality of their individual stock holdings. In the third chapter, Lynch tells readers how to create a winning mutual fund portfolio. His essential mantra is to invest in a variety of fund types--large cap, small cap, growth fund, value fund, dividend yield fund, international fund, and so on. Different types of funds perform in different market conditions. By building a portfolio that contains a variety of funds, you can ensure that some part of your portfolio does well in all market conditions. On choosing the right fund, Lynch's advice is not to be overly swayed by one-, three or five-year returns. Instead, his advice is to look for funds that have performed consistently in both bull and bear markets.
In the next three chapters Lynch dwells on his years as a fund manager at Magellan.
Here, the reader gets a close ringside view of how this star fund manager went about buying and selling stocks. While he did look up a company's financial track record, the essential determinant of whether he would invest in it was the prospects of the business. To stay up-to-date on this count, he would be constantly talking to companies' management. Most ordinary investors would not have access to a company's management, as a fund manager would. But by having a long investment horizon, looking up a company's finances and reading up a couple of analyst reports, retail investors can avoid some of the egregious mistakes that cause heavy losses in stocks.
Lynch's book makes for easy reading.
Wrapped up in a witty, earthy and conversational style comes a lifetime of wisdom from one of the outstanding fund managers of all times. His enthusiasm for and love of stock investing shines through in every page and infects the reader. There may be heavy, equation-laden books on investing written by academicians. But if it is practical wisdom you are looking for, Lynch's book is the one you should go to, especially at the start of your investment journey.
About the author Peter Lynch was a renowned fund manager at Fidelity, the US-based mutual fund house.
He managed the Magellan Fund between 1977 and 1990, creating a track record that has been matched by very few others. After retiring prematurely from fund management, he wrote books such as `Learn to earn', `One up on Wall Street', and the one being reviewed.
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