A recent article in Fidelity.com offers insights from investing legend Peter Lynch.

Here are some highlights:

• “In the stock market, the most important organ is the stomach. It’s not the brain.” Lynch says tolerance for pain is paramount because there will always be market declines. “Most people do really well,” he says, “because they just hang in there.”
• “More people have lost money waiting for corrections and anticipating corrections than in the actual corrections.”
• During the 13 years that Lynch oversaw Fidelity’s Magellan fund, the market declined by 10% or more nine different times. “Every time it went down,” he said, “the fund went down more. So, I just didn’t worry about it.”
• According to Lynch, investors should “look in the mirror every day and say: What am I going to do if the market goes down 10%. What do I do if it goes down 20%? Am I going to sell? Am I going to get out? If that’s your answer, you should consider reducing your stock holdings today.”
• As far as where investors should be looking for opportunities in today’s markets, Lynch believes that emerging markets “could be a place to research.”
• The biggest mistake he sees investors make, says Lynch, is gambling rather than investing: “The public’s careful when they buy a house, when they buy a refrigerator, when they buy a car,” but adds, “They’ll put $5,000 or $10,000 on some zany idea they heard on the bus. That’s gambling. That’s not investing. That’s not research. That’s just total speculation.”
• “Stocks aren’t lottery tickets. Behind every stock is a company. If the company does well, over time the stocks do well.”
• The important thing to focus on in equity investing, says Lynch, is not that a stock price goes up, but rather why it goes up. “What happened to the story? That’s what research is about. Did the company’s fundamentals get better?” He says it’s important for investors to ask themselves whether they understand a company’s business: “What can you add to the math? Do you have an edge?”
• How does an investor know when to sell a stock? Lynch says, “When the business goes from semi-crummy to better to good, I’m probably out. You sell the company that was the growth story when there’s no room to grow.” He adds, “You have to define when a company is getting close to maturity, and that’s when you exit. Or the story deteriorates. If the story’s intact, you hold on.”
• On how much the economy impacts stocks, Lynch says, “I think if you spent over 13 minutes a year on economics, you’ve wasted over 10 minutes. I mean, it’s not helpful.”
• Of his own investment mistakes, Lynch says, “You have flops. Maybe you’re right 5 or 6 times out of 10. But if your winners go up 4- or 10- or 20-fold, it makes up for the ones where you lost 50%, 75%, or 100%.”
• Over his 50 years with Fidelity, Lynch says he has seen an improvement in the individual investor’s edge relative to that of the investment professional. “The data now is so good,” he says. The problem, however, is that “people have so many biases. They won’t look at a railroad, an oil company, a steel company. They’re only going to look at companies growing 40% a year.”