Top 5 stock market lessons from legendary investor Peter Lynch that you should follow

Legendary American investor Peter Lynch is known for his invaluable stock market lessons. The market expert who built one of the best track records in mutual fund history during his stint as Fidelity Magellan fund manager, wrote the popular book ‘One Up on Wall Street’.

Peter Lynch popularised the concept of ‘tenbaggers’, helping investors find stocks that could deliver strong returns in the long run. Here are the top 5 market lessons that every investor should learn from the veteran.

1) Invest in what you know

Peter Lynch has consistently advocated that investors must have a proper understanding of what the companies do before investing in them. It is in fact one of the core principles of his popular book 'One Up on Wall Street'. "I have this expression: 'Know what you own'. If you don't understand what you own, you are toast," he said.

The market veteran quipped that people spend hours researching flights to ensure they get the best price. But when it comes to investing, "they will put $10,000 in some crazy stock they heard on the bus".

2) Find just a few stocks that can 10x your wealth

Amid the noise, Peter Lynch advocated for focus to find potential ‘tenbaggers’, which are stocks that can grow tenfold, instead of making excessive trades. As Peter Lynch puts it in his book, “All you need for a lifetime of successful investing is a few big winners”.

Tenbaggers typically are not the companies everyone is already talking about. They instead are often overlooked gems that one discovers through research or personal observation.

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3) Research well before investing

While Peter Lynch advocated for buying shares of companies that one knows well, he warned that should be done only after proper research. One should not just buy the shares of her neighbourhood restaurant or her favourite clothing brand just because she sees a long list of customers there every day.

This should only mean that the company should be added to her research list, and she should invest only after properly knowing about the company’s financials, growth prospects and more, according to Lynch.

4) Ignore market noise

Sharp market volatility often makes investors panic and make trades that they regret later. This is true for both buying and selling stocks that gain momentum briefly before fizzling out. According to Peter Lynch, "The key to making money in stocks is not to get scared out of them." "Markets go down, sometimes they go down a lot. If you are not ready for this, you shouldn't own stocks,” he once said.

Lynch once said an investor should make a decision with their brain and have the stomach to stand by it as decisions taken based on emotions can be a real performance killer.

5) Predicting stock market is total waste of time

Peter Lynch believed that predicting the stock market is a total waste of time. “People get too carried away. They try to predict the stock market. That is a total waste of time,” he said, adding that people spend an unbelievable amount of mental energy trying to pick what the market's going to do, what time of the year to buy it. “It's just not worth it,” according to the market veteran.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)