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Does the Peter Lynch Mindset Work for Investing Today?

“Of all the investment nostrums proffered by Peter Lynch, none has been more abused than “If you like the product, buy the stock.” While Lynch thought this could turn up interesting candidates for further intensive research, many of his acolytes try to ape him by simply buying companies that make whatever catches their fancy. But there are limits to any fad. Just ask the bagholders of Krispy Kreme Doughnuts, who merrily bid up the stock as they scarfed down the product, to the detriment of their health and wealth.”
Randall Forsyth
Barrons, January 24, 2005

No one can take away Peter Lynch’s track record before he retired. However, what can we learn today? Read the following article:

Download WSJ PDF Article.

All great traders know they are lucky if 3 or 4 out of every 10 trades becomes a winner. Attempting to predict those 3 or 4 out of 10 is nearly impossible. The big difference between a trend follower and a Peter Lynch (see article above again) is that trend followers don’t “tout” their trades. Trend followers know they don’t know from the beginning if a trade will become a home run. That is their philosophy. Lynch on the other hand “touts” all of his trades making the supposed fundamental case for each. Even though he knows 6 to 7 out of every 10 trades will be losers, he equally promotes the fundamentals of all plays. This strikes us as quite different than trend following on a base philosophical level.

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