How Peter Lynch DESTROYED the Market by 2,639%

Single most important thing to me in the stock market for anyone is to know what you own. If you have a desire to make money investing in the stock market, then you need to watch this video. And this is not coming from me; it's coming from legendary investor Peter Lynch. During the 13 years Lynch managed the Fidelity Magellan Fund, he averaged a staggering 29% annual return. To put this number into perspective, a $100,000 investment with Peter Lynch would have turned to a whopping near $2.74 million, a cumulative return of 2,639%.

Peter Lynch's track record has gone down in history as one of the most impressive careers on Wall Street. However, he didn't graduate from an Ivy League university; in fact, he didn't even study finance or business in college. The beauty of Lynch's strategy is in its simplicity. So in this video, we're going to cover the four main elements of Peter Lynch's investment strategy. Number three on the list is my personal favorite. Now, let's get into it.

First up on our list is "know what you own." The single most important thing to me in the stock market for anyone is to know what you own. I'm amazed how many people own stocks they would not be able to tell you why they own it. They couldn't say in a minute or less why they own. Actually, if you really press them down, they'd say the reason I own this is the sucker is going up. I mean, that's the only reason. That's the only reason they own it. And if you can't explain—I'm serious—you can't explain to a 10-year-old in 2 minutes or less why you own a stock, you shouldn't own it. And that's true, I think, about 80% of people that own stocks.

This is the kind of stock people like to own. This is the kind of company people adore owning. This is a relatively simple company; they make a very narrow, easy-to-understand product. They make a 1 megabit SRAM COSS bipolar risk floating point data I/O array processor, an optimizing compiler, a 16 dual-port memory, a double-diffused metal oxide semiconductor monolithic logic chip with a plasma matrix vacuum fluorescent display. It has a 16-bit dual memory; it has a Unix operating system; four wetstone mega flop poly silicone emitter; a high bandwidth— that's very important—6 GHz double metalization communication protocol; an asynchronous backward compatibility peripheral bus architecture; four-wave inle memory; a token ring interchange backplane; and it does in 15 NS of capability.

Now, if you own a piece of crap like that, you will never make money. Never. Believe it or not, some of Peter Lynch's great investments were in companies that many would refer to as boring. However, these businesses were simple and understandable, and that is exactly why they performed so well.

Here's an example from Peter Lynch's career to demonstrate this concept: One of the best performing stocks in Lynch's portfolio was a company named Waste Management. Waste Management is a municipal solid waste company. This is just a fancy way of saying waste management is a trash collection company. Talk about an unglamorous industry! Most investors didn't even look at the company because the industry was "boring" and not growing rapidly. While this turned most investors off, this was precisely why Lynch was interested in the name.

Lynch noticed the garbage industry was incredibly fragmented, meaning there were thousands of small companies serving the industry. While the industry itself wasn't growing rapidly, Lynch realized Waste Management could grow rapidly by buying up hundreds of these small companies and improving the operations of the newly acquired businesses. Waste Management stock turned out to be a big winner for Peter Lynch. The stock had increased 100-fold from when Lynch first invested to when he released his iconic book "One Up on Wall Street" in 1989.

You didn't have to be a genius to understand Waste Management and its business model. If I had told you Peter Lynch had a stock that increased by a factor of 100, most people would have guessed it was a high-tech company in a rapidly growing industry. But nope, it was a garbage company. There's a reason why Peter Lynch says to focus on...