Pro vs Amateur

Can amateur stock investors be better than pros? Yes! Here's how

- Karthik Anand Vijay and Udhayaprakash

Making money in the market is not exclusive to the experts and the wealthy. Peter Lynch, the fund manager of the Magellan Fund (of Fidelity Investments), showed this in his book 'One Up on Wall Street'.

It would be an understatement to say that we like the way Lynch invests. He multiplied his investors' wealth by more than 27 times from 1977 to 1990! His illustrious career and philosophy have guided many investors including a few at Value Research. The sheer simplicity of his investing philosophy put things in perspective way better than any textbook. But don't let his straightforward words lull you into thinking that investing is easy. It certainly isn't.

In this cover story, we have taken nine (out of the dozens!) quintessential Lynch quotes to help you invest the Lynch way.

Let's get started!

Circle of competence

Why odds are in your favour if you invest in what you know

Invest in what you know. As simple-sounding as this principle is, it is one of the most important principles of equity investing. Surprisingly, it is also one of the most violated principles.

The legendary Warren Buffett was the first to use the term 'circle of competence' to describe this timeless principle. Let's dive into what it means.

What is the circle of competence?

Simply put, it means investing in companies that you understand. All of us (irrespective of our investing experience) have some know-how in specific sectors. We either develop it through our line of work, as a customer or through plain-old research.

The circle of competence varies with experience and knowledge. Investing debutants might have a narrow circle of competence limited to a few sectors. On the other end of the spectrum, veterans and professionals might have a broad circle of competence encompassing multiple sectors.