Peter Lynch: The Secret to “Buying the Dip'

Anyone that has been following this channel knows I am a huge fan of Peter Lynch. Lynch rose to prominence running the legendary Fidelity Magellan Fund and writing books such as “One Up on Wall Street,” one of my top 5 favorite investment books. Over his 13-year career at Fidelity, the fund averaged a nearly 30% annual compounded return. Meaning $1,000 invested in his fund turned into $30,287 in little more than a decade. With a track record like that, it is clear that if you want to learn more about investing, you should learn from Peter Lynch. These impressive results are the reason I frequently incorporate lessons I have learned from studying Peter Lynch both in my personal investing and in my job as an Investment Analyst at a large investment fund based in New York City. In this video, we are going to watch one of my favorite clips of Lynch where he talks about how one of his best investments came as a result of “buying the dip” as opposed to panic selling. After the clip, we are going to break down this strategy and talk about how I applied the strategy to find an investment that made me over 3x my investment over the past 2 and a half years. The ultimate goal is for you to apply these investing lessons in your own portfolio. But first, make sure to like this video and subscribe to the channel if you aren't already because it is my goal to help make you a better investor by studying the world's greatest investors. Without further ado, let's dive in!

Let's take a second to break down the situation Peter Lynch faced when he invested in Kaiser industries because once we do, it will help you understand why Lynch was able to have the courage to buy the dip in the company’s stock price instead of panic selling when the stock fell in value. For background, Kaiser industries was a conglomerate. Put simply, it was a large company that owned many smaller companies. Kaiser industries owned companies such as Kaiser Aluminum, Kaiser Steel, and Kaiser Cement. Lynch was able to identify this company as undervalued and an attractive investment. He bought a large amount of stock at $14 a share. However, after the purchase the stock price continued to fall pretty substantially, all the way to $3 a share. Why did Peter Lynch not panic sell like most investors did at the time? It is because he truly understood what the company did and continued to believe the underlying fundamentals of the business remained strong, despite what happened with the stock price. This is why he continued to buy more and more shares as the price fell. Once the company hit its low of $3 a share, the company was so undervalued that the management of the company was forced to dissolve the conglomerate and distribute the businesses that it owned to the people that owned the shares. Shareholders received cash from the sales shares in the affiliated companies. For every 100 shares of Kaiser Industries, a stockholder got 25 shares of Kaiser Aluminum, 13 shares of Kaiser Steel and 7 shares of Kaiser Cement. Once this happened, the value of the company increased dramatically, making this investment once of Lynch’s most successful investments of all time.

Here are the main takeaways for investors: 1) truly understand the company behind the stock you own. If you view stocks as companies with underlying business fundamentals as opposed to just pieces of paper that float around in price, you will be more comfortable with price fluctuations. That leads me to the second main takeaway: if the underlying fundamentals of the business remain unchanged but the stock price is declining, that could be a sign of a great buying opportunity either to start a new position in a stock or add to your holdings in that stock.

[jdstarek]

Subscribing because of the “Time to Lynch” counter

[koklol]

The secret is; Always keep in mind that you are buying a business, and a business doesn't change in 3 months or a year, no matter what the price of the stock does.

[SylviaJoe]

Buying a stock is easy, but buying the right stock without a time-tested strategy is incredibly hard. Hence what are the best stocks to buy now or put on a watchlist? I’ve been trying to grow my portfolio of $560K for sometime now, my major challenge is not knowing the best entry and exit strategie;s ... I would greatly appreciate any suggestions.

[TWN]

Peter Lynch is the best combination of investor and investment teacher. That specific lecture is the best breakdown of fundamental stock market investing ever.

[lauravolkman]

I wish Peter Lynch would have been a guest lecturer at my college

[somchai]

‘I bought the dip but the dip kept on dipping” Will Rogers

[gaiagorgeous]

I totally agree it is a good time to capitalize on the market for long-term gains, but it wouldn't hurt to know means of actualizing short term profit, been reading off investors pulling off millions of dollars in gains presently, and I'd love to be a part of this

[iwillpro]

There is so much to learn from Peter Lynch as a Man and as Investor. He is my idol.

[pal]

Not only is Peter Lynch the GOAT- he is a practical and down-to-earth man. I grew up in the same small town where he lived and was at Sunday mass often.

[kanidanielpaul]

I love how he explain everything with the same seriousnes, but the audience takes it as humor.

[christophermartin]

Peter Lynch is my favorite trader of all time! Such a regular guy with a completely no nonsense approach to the stock market!

[StockStory]

His comment about it is hard to go out of business if you have no debt is important also when buying a falling stock. Little or no debt gives some security that it will not go to zero. Your example of Apple is good from the operational stand point and it is also flush with cash they can handle any debt they have. Their high profit margins mean they are continuously adding to that cash as well making it well supported fundamentally. Thanks for the video.

[kirkNJ]

"understanding the company" is not enough to accurately predict the performance. You have to understand the market for its goods/services. Will customers continue to want to buy them? And you also have to understand what competition he company will face. Will the company be able to compete? And what kind of regulatory or political risks? These things are very hard to predict -- close to impossible. That's why diversification is important.

[dakotah]

Thanks for adding some context to his comments. Very helpful to us new investors

[HeadOn-Motivation]

Peter Lynch is simply one of the best investors of all time.Great video 👍

[idt]

Imagine having Peter Lynch as your grandfather...the talks would be amazing.

[dale]

I think Buffett said Lynch is the best teacher of investment

[stephenrichard]

Being successful don't happen by magic, success depend on the action or step you take to achieve it, show me a man who doesn't have investment and l'l tell you how soon he’ll go broke, investment is like building a safe heaven for the future .with the right choice of investment that has at least 1% minimum risk, and with the guidance of an expert, profit and interest should be 90% guarantee.

[abhinavsrivastava]

"Walk around the block" sounds like a good solution to most of the problems in life.

[temimegraham]

I live in Boston, Peter lynch is a legend here……Even Warren Buffett invited him to visit Omaha ….