Peter Lynch was a legendary investor who managed the Fidelity Magellan Fund from 1977 to 1990, achieving an average annual return of 29.2%. He wrote several books on investing, including ‘One Up on Wall Street’, where he shared his stock selection process and strategy¹.
Lynch’s stock selection process was based on the idea that individual investors have an edge over professional investors, because they can spot great companies in their everyday lives. He encouraged investors to buy what they know and understand, and to use their eyes, ears and common sense to find potential winners¹².
Lynch also classified stocks into six categories: slow growers, medium growers, fast growers, cyclicals, turnarounds and asset plays. He had different criteria and expectations for each category, but he generally preferred fast growers with strong earnings growth and reasonable valuations¹³.
Lynch used several valuation metrics to evaluate stocks, such as the price-to-earnings ratio (P/E), the earnings growth rate (G), the dividend yield (D) and the PEG ratio (P/E divided by G). He also looked for companies with low debt, high profit margins, consistent cash flow and shareholder-friendly management¹²⁴.
Lynch’s stock selection process was simple but effective. He demonstrated that individual investors can beat the market by doing their homework, being flexible and disciplined, and investing in companies that they understand and believe in.
(1) What Are Good Investment Tips? Peter Lynch’s Philosophy And Selection …. https://bing.com/search?q=peter+lynch+stock+selection+process.
(2) Renowned Wall Street Investment Manager Peter Lynch’s … – Forbes. https://www.forbes.com/sites/investor/2022/12/08/renowned-wall-street-investment-manager-peter-lynchs-screening-strategy/.
(3) Pick Stocks Like Peter Lynch – Investopedia. https://www.investopedia.com/articles/stocks/06/peterlynch.asp.
(4) Peter Lynch’s Formulas for Valuing a Stock’s Growth – The Balance. https://www.thebalancemoney.com/peter-lynch-s-secret-formula-for-valuing-a-stock-s-growth-3973486.