Compare that with average investor equity returns, which are 1.4% lower, and the returns are about $92,000. While that’s still a great return, it’s barely half the value of a buy-and-hold strategy on the S&P 500.
3. Only buy what you understand-Peter Lynch
Peter Lynch is well-known for his performance running the Fidelity Magellan fund (NASDAQMUTFUND: FMAGX), earning 29% annually, nearly doubling the S&P 500 returns while managing the fund from 1977 to 1990.
While running the Magellan fund, he had to put aside all the hype surrounding him and focused on strong companies. So how did Mr. Lynch find valuable companies to return 10 times their investment? He bought what he understood.
As Lynch said, “If you can’t explain to a 10-year old in two minutes or less why you own it, you shouldn’t… Stocks are not lottery tickets. There is a company behind every stock.”
Identifying that they were selling cheaply and had huge growth potential, he made wise investments such as Dunkin’ Donuts (NASDAQ: DNKN) and Walmart (NYSE: WMT). The companies were easier to understand for consumers, serving millions of Americans with thousands of stores. Both stocks grew over 1,000% during his tenure through the 1980s.