Peter Lynch: How to invest in 2023

If you want to learn how to get rich investing in the stock market, Peter Lynch is someone you need to be learning from. Lynch has arguably the best track record of any stock picker that has managed large amounts of money during his time running the famous Fidelity Magellan Fund. Lynch was able to achieve a nearly 30 percent annual return over a 13-year period. This is virtually unheard of in the world of professional money management.

Thankfully for us, Peter was an open book with the secrets of how to invest successfully after he left the industry. I have spent countless hours studying everything Peter Lynch has ever written and every interview he has given. I've condensed that knowledge down to the absolute six most important lessons that you need to know in order to invest successfully. All I ask for in return is for you to hit that like button and subscribe to the channel, because it's my goal to help you become a better investor. Now, let's get into the video.

You need an edge to make money too. People have incredible edges, and they throw them away. I'll give you a quick example of Smith Klein. This is a stock that had Tagamet. Now, you didn't have to buy Smith Klein when Tagamet was doing critical trials. You didn't have to buy Smith Klein when Tagamet was talked about in the New England Journal of Medicine or the British version, Lancet. You could have bought Smith Klein when Tagamet first came out.

A year after it came out, let's say your spouse, your mother, your father, or if you were a nurse, or a druggist, you were writing all these prescriptions. Tagamet was doing an amazing job of curing ulcers. It was a wonderful pill for the company because if you just stopped taking it, the ulcers came back. See, it wasn't a crummy product that you took for a buck and it went away; it was a great product for the company. But you could have bought it two years after the product was on the market and made five or six times your money.

I mean, all the drugs, all the nurses, all the people—millions of people saw this product—and they're off buying oil companies, you know, or drilling rigs. It happens. Then three years later or four years later, Glaxo, an even bigger company, is a huge company, brought Zantac, which was a better, at that time, an improved product, and you could have seen that take market share, do well, and make good about Glaxo. You could have tripled your money.

So, you only need a few stocks in your lifetime that are in your industry. If you've worked in the auto industry, let's say you're an auto dealer, the last 10 years you would have seen Chrysler come up with a minivan. If you're a Buick dealer or a Toyota dealer, or a Honda dealer, you would have seen the Chrysler dealership packed with people. You could have made ten times your money on Chrysler a year after the minivan came out. Ford introduced its Taurus Sable, the most successful line of cars in the last 20 years. Ford went up sevenfold on the Taurus Sable.

So, if you're a car dealer, you only need to buy a few stocks every decade. When your lifetime's over, you don't need a lot of five-baggers to make a lot of money, starting with ten thousand dollars or five thousand dollars. In your own industry, you're going to see a lot of stocks, and that's what bothers me. There are good stocks out there looking for you, and people just aren't listening and they're just not watching it. They have incredible edges. People have big edges over me.

They work in the aluminum industry. I see aluminum inventories coming down six to eight months; they see demand improving in America today. You know, it's hard to get an EPA permit for a bowling alley, never mind an aluminum smelter. So, you know, when aluminum gets tight, you just can't build seven aluminum smelters. When you see this coming, you can say, "Wait a second, I can make some money."

When an industry goes from terrible to mediocre, the stock goes north. When it goes from mediocre to good, the stock goes north. When it goes from good to terrific, the stock goes north. There are lots of ways to make money in your own industry. You could be a supplier in the industry; you can be a customer. This thing happens in the paper industry; it happens in the steel industry. It doesn't happen every week, but if you're in some field, you'll see a turn, you'll see something.

In the publishing industry, these things come along, and it's just mind-boggling. People throw it away. Now here's a big point, remember this one: it's futile to predict the economy, interest rates, and the stock market. I mean, people keep trying to do this. I mean, this would be useful. I would love to know in every session, I'd love to know when interest rates can go up or down. I'd love to know when the stock market's going to go up— that would be helpful. I would like to get next year's Wall Street Journal.

Unfortunately, you don't get it. I remember in 1982 we had a lot of people in this room around for '82. We had a 20 prime rate, 15 long governments, double-digit unemployment, double-digit inflation. I don't remember anybody telling me about that. In 1980, I remember they told me about that in 1981, but in '83, I remember they said, "Well, the economy's going to bounce back." We had a recession in '85.

In '85, they said, "We have a recession." In '86, '87, something happened in October '87. I forgot what. Something happened; the Celtics lost seven in a row—something bad in '87. They said for sure, we would have a recession in '88, and they said '89, "For sure, recession," and then '90, we were supposed to have the so-called soft landing, which we never had. So, I've always said, if you spend 13 minutes a year in economics, you've wasted 10 minutes.

All you need to know about the stock market is it goes up, and it goes down, and it goes down a lot. That's all you need to know. Again, it'd be terrific to know what's going to happen in the economy, but I deal with facts. If inventories are going up, if copper prices are going down, if room occupancy has gone the wrong way—big buildings, too many hotels—I look at freight car loadings in my own railroad stocks. I deal with facts; I don't deal with people telling me something's going to happen in the future.

You might as well call this psychic hotline for that stuff to get better. A lot of times, people buy on the basis the stock has gone down this much. You know, how much further is it going to go down? I remember when Polaroid went from 130 to 100. People said, "Here's this great company, great record; whatever gets below 100, you know, just buy every share," you know, and it did get below 100. A lot of people bought on that basis and said, "Look, it's gone from 135 to 100; it's now 95, what a buy!"

Within a year, it was 18. This is coming with no debt. I mean, it was just so overpriced it went down. I did the same thing in my, I think, my first or second year at Fidelity. Kaiser Industries had gone from 26 a share to 16. I said, "How much lower can it go? It's 16." So, I think we bought one of the biggest blocks ever on the New York, on the American Stock Exchange of Kaiser Industries at 14. I said, "You know, it's gone from 26 to 16, how much more can it go?"

Well, at 10, I called my mother and said, "Mom, you're going to, uh, look at this Kaiser Industries. I mean, how much lower can it go? It's gone from 26 to 10." Well, I went to six, it went to five, it went to four, and it went to three. Now, I am fortunate this happened rapidly. I would probably still be catting or I'd be working at the Stop and Shop, but it happened fast. I was able to sell it; it was compressed that, and at three, I figured out, you know, there's something very wrong here.

Because Kaiser Industries owns 40 percent of Kaiser Steel, they own 40 percent of Kaiser Aluminum, they own 32 percent of Kaiser Cement, they own Kaiser Broadcast, they own Kaiser Sand and Gravel, they own Kaiser Engineers, they own Jeep—they own business after business, and they had no debt. Now, I learned this very early; this might be a breakthrough for some people: It's very hard to go bankrupt if you don't have any debt.

It's tricky; some people can approach that. It's a real achievement that they had no debt, and the whole company at three was selling at about 75 million. At that point, it was equal to buying one Boeing 747. I said, "There's something wrong with this company selling for 75 million." I was a little premature at 16, but I said, "Everything's fine, and eventually, this will work out."

What they did is they gave away all their shares to their shareholders. They passed out shares in Kaiser Cement, they passed out shares in Kaiser Aluminum, they passed out their public shares in Kaiser Steel; they sold all the other businesses, and you get about 50 a share. But if you didn't understand the company, if you were just buying on the fact the stock had gone from 26 to 16, and then it got into 10, what would you do when it went to nine? What would you do when it went to eight? What would you do when it went to seven?

This is the problem that people have: they sell stocks because they didn't know why they bought them. Then it went down, and they don't know what to do. Now, do you flip a coin? Do you walk around the block? You know, what do you do? It's psychiatrists that haven't worked so far. I've never seen them running the psychological psychiatry fund. I've never seen a list listed for the SEC to make it through as a mutual fund, so they haven't seemed to help. I've tried prayer; that hasn't worked.

So if you don't understand the company, you have this problem. When they go down, there's always something to worry about. If you own stocks, there's always something to worry about; you can't get away from it. What happens in the '50s? People were worried about the only reason we got out of the Depression was World War II. We got another recession in the early '50s and said we were going to go right back into a depression. People worried about a depression in the '50s, and they were worried about nuclear war.

I mean, back then, you know, the little warheads they had then, they couldn't blow up McLean, West Virginia, or McLean, Virginia, you know, or Charlestown. Now, all these countries that end in "stan," there's nine of these "stan" countries that have come out of Russia; they all have enough warheads to blow the world up, and no one worries about it. When I was a kid, people were building fallout shelters. And we used to have this civil defense drill—remember this one? In high school, you get under your desk. I never thought even then that was a particularly good thing to do; just, you know, if it blows up, we're all going to die.

But in the '50s, people wouldn't buy stocks. Except for the '80s, the '50s was the best decade of the century for the stock market, and people wouldn't buy stocks in the '50s because they were worried about nuclear war and they were worried about depression. Then people remember when oil went from 4 to 40, and it was going to go to 100 and we were going to have a depression. Remember that one? Well, about three years later, the same experts now said higher paid oil is now a 10.

They said it was going to go to four, and we were going to have a depression. And then the Japanese—remember the Japanese? We were going to own the world, remember that one? And then we were going to have a depression. And then about two years later, we were all worried about Japan collapsing. This is the most absurd thing I've ever heard. It's a country with a 20 percent savings rate, incredible workforce, kernel productivity, and people are saying we're going to have a depression?

They'd have, you know, on their prayer list, they'd load Mother Teresa and triple children and they're praying for Japan at night, you know? It's unbelievable. I mean the LDC debt—remember the LDC debt? Remember that one? All these countries—all Chase had lent their net worth to Brazil, Chile, Peru, and all these other countries. So ahead of all the other, and all these set, they're not going to pay it back and we're going to have a depression.

It always ends, and we're going to have a depression or the Great Depression—I've never quite understood that adjective in front of depression. But if the—the Great Depression or the big one, the big one's coming, but all these countries—and now I understand these are called—the then they were called less developed countries. Now we used to call them underdeveloped countries. Those are all wrong terms; those are not politically correct. You have to call these emerging countries. You can't use less developed or underdeveloped because that's in fact.

The other day, I heard the politically correct term for something that's overweight is laterally challenged. That's, yeah, that's a so there are always something to worry about. When you were actively managing money, you presumably were under the same pressures as other fund managers to show performance results. Did that incline you to sell too quickly sometimes? Well, I think my greatest mistakes are—you know, it's funny—on a stock, all you can lose is 100 percent. I've done that, but your greatest mistakes are selling a good company, and then it doubles, then it triples, and quadruples because you make a lot of mistakes.

Some of my mistakes, just saying, "Oh my God, this stock is too high," and I was wrong. You had to figure out what inning am I in this baseball game. I sold Toys R Us way too early; it went up 20-fold after I sold. I did the same thing at Home Depot. Those are probably two greatest mistakes I ever made. When should you sell? Well, you ought to find out why you bought a stock. If you're saying it's a cyclical company, and they're doing poorly, and they're doing awful, you wait till things are getting better; they're doing terrific, and then you sell it.

But with a growth company, you have to say—Walmart's case—ten years after they went public, you could have bought the stock and made 500 times your money because they still were only in 15 states in the United States. And they could say, "Why can't they go to 17? Why can't they go to 19? Why can't they go to 23?" So the next four decades, they're around the country, so you have to say to yourself, "In this stock, I have a 10-year story, a 20-year story; I’d be able to write that down and follow that." That's what I do with the company, and that's your decision. That's how you sell it.

So I have no idea when the market's going to go down, and no idea when it's going to go up. I'm totally shocked the market was 4000 two and a half years ago—well, it goes 8000. I had no idea about this—very surprisingly—but I'll guarantee you the market will be a lot higher in 15 years. It'll be a lot higher in 25 years. What it's going to do in the next one or two years, I don't have any idea. And if somebody in this room knows about it, they're not telling anybody or they're not in this room; they're down in Palm Springs somewhere, you know.

They've made a billion dollars, or if they know anything about interest rates, there's an interest rate. If you write five times in a row and 10 grand, you can have 2 billion. It's not that many people with 2 billion. There are a lot of people predicting these trades. Do you ever think about that one? Yeah, just five times right in around 10 grand—2 billion. It's a big number.

So I don't worry about that. I know we've had 96 years of century and the market's fallen 53 times. We've had 53 declines of 10 percent or more. Considering declines in 96 years, once every two years we have a 10 percent decline. Of the 53 declines, 15—1-5—have been 25 percent or more.

So 15 in 96 years, about once every six years the market falls 25 percent more. That's what we call a bear market—you know that. And it's going to happen. I don't care when it’s going to happen. I would love to know; obviously, it would be very useful to know when it's going to happen. It doesn't make a difference to me. Corporate profits will be a lot higher eight years from now, a lot higher 16 years now, a lot higher 30 years from now. That's what I deal with.

So there we have it. Thank you so much for watching, and I hope you enjoyed the video. Make sure to hit that like button and subscribe to the channel because our community of investors is approaching 200,000 people strong, and it would be even better with you as a part of it. Talk to you guys again soon.