Peter Lynch’s Long-Term Game

The legendary manager of Fidelity’s Magellan fund (in the 1980s) was big on doing plenty of research before investing, writes Validea CEO John Reese in a recent issue of The Globe and Mail.

Reese outlines Lynch’s investment philosophy and summarizes three maxims that the veteran fund manager outlined in his 1993 book Beating the Street; (1) do your homework, (2) invest for the long term, and (3) only buy what you understand. Surprisingly, the tenets were presented to Lynch in 1991 by a group of seventh graders who were learning about the stock market.

Reese offers three high-scoring picks identified by his Lynch-based stock scoring model:

  • Taro Pharmaceutical:The maker of Warfarin, hydrocortisone cream and other prescription and over-the-counter products falls in to the “fast grower” category, and its price-to-earnings of 7.9 compares favorably to its 46-per-cent growth. Get a Guru Analysis.
  • Gamestop:This manufacturer of video-game consoles and components is a “slow grower” by Mr. Lynch’s definition. But it has a nice dividend yield. While the S&P 500 average is currently around 2.3 per cent, Gamestop’s yield is 6.1 per cent. Get a Guru Analysis.
  • Amtrust Financial:A provider of workers’ compensation and other insurance products for small businesses, Amtrust has five-year average earnings per share growth of 27.4 per cent, well within the range Mr. Lynch set for sustainable growth. Get a Guru Analysis.