Many investors are drawn to stocks of companies that come from exciting, booming industries or that have catchy names and flashy new products. But mutual fund legend Peter Lynch prized a much different set of qualities in his investments, and in his latest article for NASDAQ.com, Validea CEO John Reese takes a look at some of them.
Reese notes that Lynch is known for his “buy-what-you-know” advice — the notion that individual investors can find good investment ideas by paying attention to their own buying habits. “But,” he says, “investors often overlook a couple key points when considering Lynch’s buy-what-you know mantra. First, Lynch warns that focusing on what you know is a good starting point when examining a company, but far from a be-all and end-all. … Second, while it was the most publicized, ‘focus-on-what-you-know’ was just one of many jumping-off points Lynch used when looking for stock ideas.”
Reese lists five of those qualities, and with each offers a stock pick that possesses the quality — and also passes his Lynch-based Guru Strategy (which is based on the quantitative criteria Lynch used to analyze stocks). One example: Companies in dull businesses caught Lynch’s eye, because they usually flew under the radar, allowing investors a lot of time to get their shares on the cheap before others caught on. Box-maker Packaging Corporation of America (PKG) currently seems to fit the bill, Reese says.
To see the other qualities Lynch looked for, and Reese’s stock picks, click here.