Stick to What You Know

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Stick to What You Know

Investing in what you know about and understand is at the core of Peter Lynch’s stock-picking approach. Lynch invested only in industries he had a firm grasp on, such as the auto industry. That’s what led him to Chrysler (today part of Stellantis N.V.) back in the early 1980s. Chrysler was getting beat up by the competition and was near bankruptcy—it seemed the carmaker would never regain its footing. But after seeing prototypes of a new thing called a minivan, Lynch invested in Chrysler, which more than tripled in price while he owned it.

Look in your own backyard for good investment ideas

Moreover, Lynch has pointed out that you will find your best investment ideas close to home. He claimed, "An amateur investor can pick tomorrow’s big winners by paying attention to new developments at the workplace, the mall, the auto showrooms, the restaurants, or anywhere a promising new enterprise makes its debut." For example, Lynch said that after his wife raved over the fact that Hanes Co. (HBI) conveniently sold its L’eggs pantyhose in grocery stores, he figured the company was on to something good. His hunch was right. Lynch’s main point here is to look around you, because that’s where you are most likely to find your winners.