Peter Lynch is an American investor, mutual fund manager, and philanthropist. As the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than double the S&P 500 stock market index and making it the best-performing mutual fund in the world. During his 13-year tenure, assets under management increased from US$18 million to $14 billion.
A strong proponent of value investing, Lynch wrote and co-authored a number of books and papers on investing strategies, including “One Up on Wall Street”. He coined a number of well-known mantras of modern individual investing. Lynch has been described as a "legend" by the financial media for his performance record. Today’s article is going to focus on 3 of his key mantras.
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”
Peter Lynch
It is almost impossible to 'time' the market. Let’s analyse market data a bit more to explain this.
Below is a table of the Sensex performance over the past 30 years. We have looked at daily returns starting at <0% and progressively moving up with returns of 0% - 5%’ for the day.
The total number of trading sessions was 7456 trading days over these 30 years i.e. from 1st Jan-1991 to 28th Sep-2021
Now let’s look at the performance of the Sensex within these ‘return bands’ and how many times did each of the specific ‘performance’ events occur.
Over 30 years / 7456 Trading Sessions.
| Sensex - Daily Performance Bands | No of Occurrences out of 7456 Trading Days | % of Occurrence |
| Less than 0% | 3489 | 46.8% |
| 0% to 1% | 2382 | 31.9% |
| 1% to 2% | 1017 | 13.6% |
| 2% to 3% | 348 | 4.7% |
| 3% to 4% | 123 | 1.6% |
| 4% to 5% | 41 | 0.5% |
| More than 5% | 57 | 0.8% |
It is indeed impossible to anticipate or predict such isolated events and invest accordingly.
It is indeed impossible to anticipate or predict such isolated events and invest accordingly.
Over the past 30 years, The BEST investor returns days (>3%) constituted 221 days out of 7456 trading days i.e. <3% of the time. And the punters are trying to ‘time’ this small window of opportunity?
MIMI PARTHA SARATHY
Managing Director,
Sinhasi Consultants Pvt. Ltd.
I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it.Peter Lynch
Refrain from bias clouding investor behaviour- ‘High return days’ come only during a bull market phase. A 30-year study of the 'Best Days' in terms of returns shows that more than 50% of the best 30 days were during a bear market phase.
"Although it's easy to forget sometimes, a share is not a lottery ticket. It's part ownership of a business."
- Peter Lynch
Conclusion
Please remember investing is mostly backing quality businesses run by quality managements that offer a runway for strong cash flow growth, earnings potential, and long-term prospects. Buying them at a “reasonable” price with an eye on the returns is important. Stay invested, stay disciplined and secure your returns.
Most good advisors prepare a sound long term holistic financial plan for you based on your risk profile, define your financial goals along with you… do an asset allocation (with contingency plans built in) with you. They are in the best objective position to help you navigate the markets.
To understand how we can help you maximize your investment goals or leave a comment below on your thoughts.
Bibliography
How does Financial planning work? | A legend’s words to the layman investor| Top 5 Investment Lessons From Peter Lynch, ETMONEY | Peter Lynch on Common Investor Mistakes, NOVEL INVESTOR | How you can benefit from legendary investor Peter Lynch's strategy, BUSINESS TODAY
