In his latest column for Amazon.com’s Money & Markets blog, Validea CEO John Reese looks at how investors can use the wisdom of mutual fund legend Peter Lynch to beat the market.
“Lynch is known for his ‘buy-what-you-know’ advice — the idea that average investors can get turned on to new stock ideas by looking out for companies whose products they have used and liked,” Reese writes. “But that part of his approach was only a starting point. What his strategy really focused on was fundamentals, and the most important fundamental he looked at was one whose use he pioneered: the P/E-to-Growth ratio.”
Reese looks at how Lynch used the PEG ratio and several other variables to choose stocks. He also talks about how critical discipline was to Lynch, and talks about his Lynch-inspired Guru Strategy. A 10-stock portfolio picked using the model is up 8.9% since its July 15, 2003 inception vs. 5.1% for the S&P 500.