The Secrets of the Masters
Sometimes I almost feel sorry for the market timers.
There’s a reason famed money manager Ken Fisher calls the stock market “The Great Humiliator.”
Nobody can know with any certainty what the stock market will do next week, next month, or next year. The sooner you recognize that, the sooner you can start making money in stocks…
I learned this lesson from three world-beaters: Warren Buffett, John Templeton and Peter Lynch.
Going Outside My Research Department…
As a young man starting out in a stock brokerage 27 years ago, I made a startling discovery. The “analysts” at my firm picking stocks for clients weren’t just bad… they were awful. I soon found myself looking for ideas outside my “research department.”
After six months of sheer frustration, I had an epiphany…
If I were going to learn from someone else, why not the best?
Instead of listening to the talking heads at my firm, why shouldn’t I listen to the greatest investors in the world?
As this was the early 80s, it was Warren Buffett, who ran Berkshire Hathaway, Peter Lynch, who managed the Fidelity Magellan Fund, and John Templeton, who headed the Templeton Growth Fund.
These men had very little in common in their investment approaches:
Buffett was (and is) a value guy.
Lynch was a growth analyst.
Templeton was a global markets pioneer.
But they all started from the same premise: They didn’t have a clue what the broad stock market was going to do.
That was fine, because they knew something much more valuable: how to identify companies selling for far less than their intrinsic worth. And when the market recognized that value, they sold them.
11 Lessons From Peter Lynch
For instance, Peter Lynch taught me:
- Behind every stock is a company. Find out what it’s doing.
- Never invest in any idea you can’t illustrate with a crayon.
- Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
- Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
- Time is on your side when you own shares of superior companies.
- Owning stock is like having children. Don’t get involved with more than you can handle.
- When the insiders are buying, it’s a good sign.
- Unless you’re a short seller, it never pays to be pessimistic.
- A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
- Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
- Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.
Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.
A Valuable Investment Lesson for Any Investor
I know investors who have spent a lifetime (and a fortune) in the stock market and have still not learned this lesson. Or lack the intestinal fortitude to follow it.
Worse, there are a number of gurus out there who are convinced that they have the smarts – or a system – that allows them to get in and out of the market just in the nick of time. Yet you’ll notice that system (ahem) always goes on the fritz just as soon as you start to follow it.
Count yourself a sophisticated investor the day you wake up and say, “Since no one can tell me with any consistency what the economy and the stock market will do, how should I run my portfolio?”
The answer to that question is: a well-defined, battle-tested investment approach that achieves high returns with strictly limited risk.
Of course, everyone in the industry claims that they’re beating the tar out of the market.
Our approach is based on a market-neutral investment philosophy. Our focus is on teaching investors how to seek out the most undervalued opportunities in the market.
As Buffett, Lynch and Templeton famously proved, that’s what actually works.