Retail investors are often caught on the wrong foot, trying to chase momentum. Legendary investor Peter Lynch recently pointed out this behavior where he said that investors often spend more time while buying a refrigerator or an aeroplane than they do investing in a stock — a mistake that costs them.
In a recent clip making rounds on the social media platform X of his interaction with CNBC, Lynch said that chasing a stock just because it’s rising is not a good decision, and neither is acting on stock tips floating around you.
“The sucker’s going up is not a good reason,” Lynch said, cautioning individual investors against blindly following tips or price trends without understanding the underlying business.
Lynch, who famously managed Fidelity’s Magellan Fund between 1977 and 1990 and delivered one of the best track records in mutual fund history, stressed that retail investors often exercise more diligence while buying household appliances than while investing thousands of dollars in stocks.
“I think people, they’re careful when they buy a refrigerator or an airplane flight. They’re careful about their money. And then they’ll hear about a stock on the bus and put five or ten thousand dollars into it. They have no idea what they do,” he said.
Look at the business, not the buzz
Peter Lynch is well known for propagating “investing in what you know,” and adopting a fundamental approach to investing. For investors relying on stock tips or chasing momentum, Peter Lynch has a simple advice: Examine the balance sheet and look for new business and growth stories.
Reflecting on past multibagger stories, Lynch pointed to companies such as TJX, Stop & Shop, Analog Devices, and NVIDIA — firms that went on to generate enormous shareholder returns. The key, he suggests, is identifying emerging growth stories or turnaround plays early.
“You have to find a company that’s either a turnaround or a company that’s going to grow,” Lynch opined. At the same time, he cautioned that once-dominant names can fade. “Sears has rolled over, so has Kmart, IBM’s slowed down,” he noted, highlighting that markets are constantly evolving. Investors, therefore, must keep scanning for new leaders rather than clinging to legacy brands.
One of Lynch’s most practical pieces of advice centres on financial strength.
He offered a simple comparison: two beaten-down stocks fall from 50 to 3. One has $3 million in cash and no debt; the other has $3 million in debt and no cash. The choice, he implies, should be obvious.
“I think looking for something different, looking for something that’s a good story,” he said, suggesting that disciplined stock picking remains both doable and rewarding.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.
