stocks like Autozone, Costco etc. which people need their service in daily life perform far better than INTC.
Peter Lynch's most famous mantra is "Invest in what you know," which suggests that everyday people can gain an advantage over Wall Street professionals by noticing successful companies in their immediate environment.
Here is how Lynch put his philosophy into practice:
- A starting point, not the entire process. Spotting a successful product or business in your daily life should be the beginning of your research, not the end. The idea you get from personal experience must be backed up by thorough financial analysis.
- The Dunkin' Donuts story. As an example, Lynch invested in Dunkin' Donuts after noticing how consistently busy their Boston locations were and how much he liked their coffee. This firsthand observation led him to research the company's financials, and he ultimately bought the stock, which became a hugely successful investment.
- His wife's tip. His wife's enthusiastic recommendation of L'eggs pantyhose prompted him to investigate the manufacturer, Hanes Company. His research convinced him, and the stock later appreciated 30-fold.
- Spotting overlooked "tenbaggers." Lynch believed that paying attention to your daily life gives you "local knowledge" that Wall Street analysts might miss. This advantage could help you identify "tenbaggers"—stocks that appreciate ten times or more—before the professionals do.
- Focus on simple, understandable businesses. For Lynch, it was crucial to invest in businesses that were easy to understand. If you can't explain why a business makes money, you likely shouldn't invest in it.
After identifying a promising business through daily observation, Lynch would then "do his homework" by checking key fundamentals, such as:
- Earnings growth
- The balance sheet and debt levels
- The PEG ratio (price/earnings to growth)
