Peter Lynch's Money-Making Advice: 'When Things Go From Terrible to Semi-Terrible to OK, You Can Make a Lot of Money'

Investor Peter Lynch, known for his remarkable 13-year tenure managing Fidelity‘s Magellan Fund, recently said that he has never explicitly promoted investing in the stock market.

What Happened: Lynch, the author of the influential investing book “One Up On Wall Street,” clarified his stance on stock market investment in a discussion with Yahoo Finance.

During the interview, he emphasized that his objective was not to encourage stock market investment, but to provide guidance to those who decided to invest on how to do it correctly.

During his leadership of the Fidelity Magellan fund from 1977 to 1990, the fund achieved a 29.2% average annual return, making Lynch a celebrated figure in the investment world. His mantra ‘buy what you know’ encapsulated his straightforward approach to investing.

Despite his achievements, Lynch stressed that investing in the stock market is not a game. He expressed worry about the lack of caution people exhibit when investing, often risking large amounts of money on stocks they’ve heard about in casual conversations, without conducting thorough research.

Also Read: Investment Guru Peter Lynch: ‘If You Invest Only in an Index, You’ll Never Beat It. Brushing Up on Stock-Picking Skills Is Wise’

“You don’t play the market. And maybe I didn’t stress that enough in the book. It’s very important to point out, I did not say invest in the stock market. So the reason I wrote ‘One Up On Wall Street’ was to help people that wanted to do investing,” he said.

Lynch also noted that while data is more accessible now than it was 35 years ago and trading costs have reduced, this doesn’t imply that people should become traders. “That’s not investing. That’s gambling,” he remarked.

“You know, buying three stocks a day and on Friday you sell three, buy three more next week. That’s not investing. That’s gambling,” Lynch added.

For those considering investing, Lynch’s advice is to understand the company’s story, monitor the fundamentals, and follow the story. He also recommended creating a $100,000 paper portfolio of at least 10 stocks before investing real money to test one’s investing skills.

“There are also the turnaround ones that you hear about if you’re working in the industry, if you’re in the steel industry, the insurance industry, shipping, chemistry, railroads, you might see things get better before the money managers on Wall Street see it. You don’t need a lot of these in a lifetime. When things go from terrible to semi-terrible to OK, you can make a lot of money,” Lynch advised.

Why It Matters: Lynch’s comments underscore the importance of careful, informed investing. His concern about people treating stock market investment like a game highlights the risks of uninformed investing.

His advice to understand a company’s story and keep an eye on the fundamentals serves as a reminder that successful investing requires more than just following trends.

His suggestion to create a paper portfolio before investing real money emphasizes the value of practice and preparation in investing.

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