Reese on How to Dig Up Hidden Gems Like Lynch

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, 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.


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