Peter Lynch achieved 29% annual return for 13 years.

I spent 100+ hours studying his strategy.

I will explain his strategy in 10 simple steps: 🧵

1. "Know what you own and why you own it."

Behind every stock is a company, and you have to understand that company to succeed.

Peter Lynch looked for three criteria:

- Simple.

- Boring.

- Consistent.

If you can't explain what the company does in a sentence, pass it.

2. "Earnings growth is the most important thing."

Over the long run, stock prices necessarily follow earnings.

This is natural as stocks represent ownership interest in the company.

Look for consistently growing earnings.

3. "Buy fast-growing companies in boring markets."

Lynch divided stocks into 3 groups:

- Fast Growers: Growing +20% annually.

- Stalwarts: Big companies growing 10-20% annually.

- Slow Growers: Less than 10% annual growth.

You should pick fast growers in boring markets.

4. "Don't overpay."

Peter Lynch thought a fairly valued company would have a Price/Earnings Growth (PEG) ratio of 1.

PEG >1.0 = overvalued

PEG <1.0 = undervalued

Earnings growth is the most important thing, but overpaying for growth is the cardinal sin.

5. "Look for strong financial performance."

He insisted on a strong balance sheet.

He looked for:

- Debt/Equity > 1

- Debt/EBITDA < 5

- Return on Equity > 15%

After all, if you are looking at a company that won't go bankrupt, you eliminate the worst risk.

6. "It can always go lower."

Stock price means nothing alone.

As long as the business does good, it can always go higher. If the business does badly, it can always go to 0.

Don't attempt bottom fishing; if the company is a good one, a fair price is worth it.

7. "Don't time the market."

Nobody can time the market.

If you miss just the 10 best days in the market by trying to time your entry, you will miss roughly 50% of all returns.

Don't do it.

8. "Don't try predicting the economy."

Nobody can predict interest rates, inflation, economic growth etc...

If you spent 13 minutes thinking about economics, you just wasted 10 minutes.