One of the most successful investors of our time is Peter Lynch, a man who between 1977 and 1990 averaged 29% annual returns at the mutual fund he managed, consistently more than double the S&P 500. He did this by investing in what he knows.
By investing in what we know, and what we believe in, we can get into the bones of a company more than we can otherwise. If you don’t know how telecommunications satellites really work, how are you able to fully understand their operations, and therefore, how are you able to see where the company will go in the future?
Now, we’re not saying “don’t ever invest in super complex companies”, but it’s generally not a great place to start. Perhaps start with something that you know relatively well.
Let’s take fashion - we all wear clothes, some of us take it more seriously than others, of course. But who doesn’t like a quick snoop around the shops, or an evening scroll through our favourite fashion sites for a wardrobe refresh?
I bet you could name five or ten listed companies that sell clothing. Go on, try it.
Oh, that’s right - you’ve got M&S, ASOS, H&M, Gap, Nike, Burberry, Rolex… the list goes on.
We know how these brands make us feel, what the quality of the clothing is like, how expensive it is, what it’s like to shop in-store, or online, what magazines they advertise in, who their target market is.
With a little digging, you could find a bunch of other stats about them - their current stock price, forecasts for the retail sector as the cost of living crisis grows, how Brexit has affected the sector, their ESG scores, or how the war in Ukraine or Covid has shaped the industry.
From there, it’s just a hop, skip and a jump into analyst ratings, revenue, and all that fundamental research good stuff. If two hours of research is good enough for a two-week holiday, it’s good enough for your investments.
Let’s take a dive into what Mr. Lynch has to say on the topic of research: “The public's careful when they buy a house, when they buy a refrigerator, when they buy a car. They'll work hours to save a hundred dollars on a roundtrip air ticket. They'll put $5,000 or $10,000 on some zany idea they heard on the bus. That's gambling. That's not investing. That's not research. That's just total speculation.”
An infamous tale, recounted in one of his many books, is that of how Peter Lynch bought Hanes stock. Hanes - conveniently for this blog - is a clothing brand. At the time, Hanes was test-marketing out a new pair of tights (or pantyhose for our US readers) called L'Eggs and his wife was lucky enough to bag herself a pair by chance. She gave a rave review to everyone, including her husband who saw the market potential.
L'Eggs stole market share from cheap drugstore competitors, and so Lynch decided to invest, even making it one of the fund's biggest holdings. Over time, L'Eggs was bought by Consolidated Foods (now called Sara Lee) and the fund-holders benefited from a 30-fold appreciation in Hane's stock.
By understanding the worth, no matter how small an item - like tights - can revolutionise your portfolio.
At Upside, we want to get you investing in what you believe in, but without the hassle of continuous research. No spreadsheets, less stress, all professionally managed and transparent. That’s why we’re developing thematic stock bundles for you to invest in.
Take fashion for example. We’re creating a bundle of fashion stocks grouped together to invest in for those who want to take their wardrobe to the next level. Your fashion stocks won’t sit alone though, with a mix of other investment products you’ll balance out your portfolio ensuring it is diversified.
Try this new way of investing yourself through our demo app on our website.
Want to get more wisdom from Peter Lynch? Take a glance at this interview with him.