Peter Lynch Investing Screen: Searching for undiscovered growth stories
In Brief
A “fast growers” screen which looks for consistently profitable, relatively unknown, low-debt, reasonably priced stocks with high, but not excessive, growth
Background
Mr. Lynch developed his investment philosophy at Fidelity, and gained his considerable fame managing Fidelity's Magellan Fund. The fund was among the highest-ranking stock funds throughout Mr. Lynch's tenure, which began in 1977 at the fund's launching, and ended in 1990 when Mr. Lynch retired. His selection approach is strictly a bottom-up quot;buy what you knowquot; one. He suggested focusing on companies familiar to the investor, applying fundamental analysis which emphasizes a thorough understanding of the company, its prospects, its competitive environment, and whether the stock can be purchased at a reasonable price. Lynch says he would rather invest in quot;pantyhose rather than communications satellites,quot; and quot;motel chains rather than fiber opticsquot;.
He warns against diversification for diversification's sake, particularly if it means less familiarity with the firms. Instead, one should to invest in whatever number of firms is large enough to allow you to fully research and understand each firm.
He suggests categorizing a company by quot;storyquot; type, and he identifies six archetypes:
Slow Growers: Large / aging companies growing only slightly faster than the economy as a whole,...
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