Over 13 years from 1977 to 1990, Peter Lynch was the portfolio manager of the Fidelity Magellan Fund, which scored a phenomenal 29.2% annual return. Just to illustrate how impressive this performance is, consider that a hypothetical $10,000 investment that earned this return for 13 years would have grown to nearly $280,000.
Over past 54 years at Berkshire Hathaway, and 20.9% annualized returns, Warren Buffett’s longevity often earns him the “best of all time” title.
Peter Lynch’s investment principles (from his books, “One Up On Wall Street”)
Warren Buffett’s investment principles
Only Buy What You Understand
Only Buy What You Understand (so, Buffett does not buy many tech stocks. Initially, he did not buy Amazon)
Do your homework (financial ratio analysis)
– Tried to find undervalued stocks, esp. stocks that Wall Street is overlooking
Do your homework (He favors value stocks)
– Tried to find undervalued stocks
Invest for the long run. No market timing. (He said: “absent a lot of surprises, stocks are relatively predictable over 10-20 years. As to whether they’re going to be higher or lower in two or three years, you might as well flip a coin to decide.”)
Invest for the long run. No market timing. (You know he emphasize it always)
Portfolio diversification (His Magellan Fund sometimes had more than 1,000 individual stock positions, more than five times the number held by the average equity mutual fund. He diversified his portfolio over industries, company size, and growth potential. He did not diversify just for the sake of reducing risk. His goal was to build a portfolio that was diversified with only the best stocks.)
Portfolio diversification (His company also has very well-diversified portfolio. Buffett recommend index funds and ETFs to individual investors. Once he challenged hedge funds companies with his investment in the S&P500 index fund and he won!)
Do you think that both Peter Lynch and Warrant Buffett use both active and passive components of investment principles?
In what points do you or do you not agree with their investment philosophy?
Please, share your knowledge on investment philosophy of Peter Lynch and Warrant Buffett.
