What the legendary fund manager Peter Lynch would tell Indian investors today

Indian Express

12-07-2025

'Invest in what you know.' This phrase is often repeated today, yet at the same time, many investors still chase the next stock that promises quick returns. People want the next ten times return, the stock that will become a big story in a short time.
Peter Lynch, one of the most well-known fund managers, built his reputation by taking this simple idea seriously.
While running the Magellan Fund from 1977 to 1990, he gave an excellent 29 per cent return every year for 13 years. Under his leadership, the fund grew from about $20 million to more than $14 billion. This made it one of the most successful funds in history.
To understand how big this is, think of it this way: $14 billion in 1990, after adjusting for time and inflation (at 4% inflation), would be around $55 billion in today's money.
For context, HDFC Balanced Advantage Fund, one of the largest equity mutual funds of India, manages around Rs 90,000 crore (nearly $10 billion). Even many large mutual fund houses in India manage total assets of around $3-5 billion each in their equity funds.
Lynch took one fund from a small size to almost three times the size of the biggest equity fund in India today, and he did this more than 30 years ago when markets were much smaller and less developed.
But his real strength was not only in these numbers. He believed that any ordinary person can do well in the stock market. He believed that if you observe, trust your experience, and stay patient, you can find good companies before others notice them.
Lynch always said that many good stock ideas are right in front of us. They can be found in the shops we visit, in the products we use daily, and in the services we depend on. If you understand a business clearly, believe in its future, and can hold it without checking prices every day, you already have an advantage.
Today, when many new investors in India are opening demat accounts and looking for fast profits, Lynch's lessons feel more important than ever. In a market full of tips, he reminds us to look for strong businesses, understand them well, and give them time to grow.
In One Up on Wall Street, Lynch said that ordinary people have a natural edge because they are close to real life. He believed that many good investment ideas can be found simply by paying attention to what people buy and use every day.
Today, this approach makes even more sense in India.
The number of products and services around us has exploded. New brands, new apps, and new shopping habits are becoming part of daily life. By watching these changes closely, you can spot strong businesses before they become market favourites.
For example, think about what is always in your shopping bag or what apps you use daily. Are more people buying from DMart because they find it cheaper and convenient? Are your friends switching from foreign beauty products to Nykaa's brands? Do you see young people buying Titan's smart watches instead of only traditional ones? Are most people around you using Zomato or Swiggy more than cooking at home on weekends?
These are all signals that a business has strong demand and connects well with consumers. If a company keeps gaining new customers and people come back again and again, it shows strong brand loyalty. This often translates to growing sales and profits, which are key signs of a healthy business.
What exactly can a retail investor do?
Observe repeat buying: Notice which products your family keeps buying every month without thinking twice. This suggests strong customer loyalty.
Check word-of-mouth: Listen to what people recommend naturally to their friends. If a brand is popular without heavy advertising, it has a strong pull.
Visit stores or try services: Visit a store to see the footfall yourself. Try using an app or product to understand the quality and service.
Look for everyday presence: Brands or services that have become part of daily life tend to have steady growth.
Once you collect these clues, make a list of such companies. Then take the next step: study their business models and financial numbers.
By starting here, you avoid running behind random tips. You build your ideas based on what you see and trust. As Lynch believed, if you already use and like a product, you are in a better position to understand it than someone who has only seen it on a financial report.
Lynch always believed, 'Know what you own, and know why you own it.' He believed that before putting money into any stock, you must understand in simple words how the company earns and what drives its growth.
Today, this is even more important. Many new investors in India buy stocks because someone recommended them or because they saw a high past return. They focus only on price movements but do not spend time understanding the core business. This can lead to poor decisions and panic when prices fall.
A good starting point is to ask yourself:
How does this company make money every day?
Who are its main customers?
What problem does it solve, and why do people keep paying for it?
Does it have something unique (brand, network, technology, distribution) that makes it difficult for competitors to copy?
Can it continue to grow for the next 5 or 10 years?
For context: Think about…
Asian Paints makes money from decorative paints, and it controls the largest distribution network in India. This helps it stay ahead of smaller paint makers.
HDFC Bank earns through loans and fees, and it has a strong reputation for safety and service, which keeps customers loyal.
Page Industries (Jockey) earns from premium innerwear, and its strong brand image and wide retail reach help it stay a leader.
If you can describe a business clearly in one or two lines, you truly understand it. If you cannot, it is better to avoid investing until you learn more.
What exactly can a retail investor do?
Read the annual report: Start with the first few pages where the company describes its business model in simple words.
Check company presentations: Many listed companies share investor presentations online explaining their main products, strategies, and market position.
Visit stores or use the service: For consumer companies, use the product yourself or visit stores to understand the customer experience.
Ask simple questions: If someone asks you why you bought this stock, can you explain it without using fancy words? If not, you need to study more.
When you understand how a company earns and why people keep choosing it, you will feel more confident during market ups and downs. You will hold the stock longer, which is where real wealth creation happens.
As Lynch showed, strong returns come not from quick trades but from knowing your companies deeply and holding them as they grow.
Lynch warned that many investors fall in love with a company's story but forget to look at its financial health. He always said that behind every stock, there is a real company. To avoid surprises, you must check if the numbers match the story.
Without strong financials, even the best-sounding story can collapse when the market sentiment changes.
A good company should show:
Steady sales growth: This shows that demand for its products or services is real and growing.
Consistent profit growth: Profit is what remains after all expenses. Rising profits show that a company is able to manage costs and protect margins.
Healthy return on equity (ROE): This tells you how well a company uses its money to generate profit. A higher ROE (usually above 15 per cent) often indicates good management and efficient use of capital.
Low or manageable debt: Too much debt can create stress, especially during economic slowdowns. Low debt shows financial strength and flexibility.
For context: Think about…
Pidilite Industries (Fevicol): It has shown steady sales and profit growth for many years, supported by strong brand loyalty and wide distribution.
Nestlé India: It has a high ROE and stable profit margins, thanks to strong brands like Maggi and Nescafé.
Bajaj Finance: It maintains strong growth in profits while keeping bad loans under control, which shows quality in lending practices.
What exactly can a retail investor do?
Look at the last 5 to 10 years of financial statements: Focus on trends in sales, profit, and debt rather than just one good year.
Check free cash flow: A company that generates cash after expenses can reinvest for growth or pay dividends.
Compare margins: Higher and stable profit margins show strength in pricing and cost control.
Use simple ratios: Check ROE, debt-to-equity, and operating margin. These are available for free on most financial websites today.
When you look beyond the story and confirm that a company's numbers are strong and improving, you avoid many common mistakes. You become a confident investor, not someone who depends on market mood or social media tips.
As Lynch always reminded, 'The company behind the stock is what matters most.' The story can attract you, but the numbers should convince you to invest.
Lynch believed, 'The key to making money in stocks is not to get scared out of them.' He believed that more money is lost because investors panic and sell too early than because of actual bad companies.
Today, this is even more true in India.
With social media, constant news alerts, and WhatsApp groups, it is easy to feel pressure every day. Many investors keep checking stock prices every hour, reading new tips, or following what influencers say. This constant information (or noise) pushes them to act without thinking clearly.
The real risk here is that you lose focus on your research and get pulled into decisions driven by fear or excitement. A small fall in price feels like a big problem, and people sell good stocks too early. Or they buy stocks only because they are trending.
During the 2020 market crash, many people sold strong companies in fear. But those who stayed invested and trusted the underlying businesses saw these stocks not only recover but also reach new highs later.
Similarly, during temporary corrections, some companies have seen price drops many times. Yet, they have rewarded patient investors over long periods because the business fundamentals stayed strong.
What exactly can a retail investor do?
Check price less often: Once you have chosen a strong company, stop watching daily price movements. Reviewing once a quarter or twice a year is enough.
Focus on business updates: Instead of price, follow the company's quarterly results, expansion plans, and product launches.
Write down your reasons: When you buy a stock, write clearly why you bought it. Refer to this during market falls to remind yourself of your logic.
Avoid short-term predictions: Avoid trying to guess short-term highs and lows. Even experts often fail at this.
Stay away from constant tips: Avoid buying or selling only because someone said it in a group or on a video.
When you reduce the noise, you give your investments time to grow. You avoid unnecessary stress and mistakes.
As Lynch showed, the ability to hold strong businesses patiently is rare but powerful. Most people think that investing success depends on fast action and clever timing. In reality, it depends more on calm thinking and staying still when needed.
Lynch believed that you do not need to own dozens of stocks to succeed.
He warned against owning too many companies without proper study, a habit he called 'diworsification.' His view was simple: it is better to own a few good companies that you understand well and can follow closely.
Today in India, many investors collect stocks like shopping items – a few from tips, a few from social media, and a few from news articles. Soon, they end up with 30 or 40 stocks and no clear reason for holding most of them. This creates confusion and makes it difficult to track each company properly.
Instead, building a small, focused list of strong companies forces you to study each one deeply. You know exactly why you own it, what makes it strong, and when to exit if the story changes.
However, focus alone is not enough.
The second key is patience. Lynch often said that his best returns came from stocks he held for many years. He believed that time in the market, not timing the market, is what creates real wealth. Many investors exit too soon after a small profit, missing the real growth that happens over long periods.
What exactly can a retail investor do?
Limit the number of stocks: Aim for five to ten strong companies that you can easily track and understand.
Write a clear thesis: Note down why you chose each stock, what strengths you see, and what would make you consider selling.
Review business progress, not just price: Follow yearly reports and major updates instead of checking price charts every day.
Avoid chasing quick profits: Decide in advance that you will hold as long as the business stays strong, even if prices move up and down in the short term.
Think like a partner: View yourself as a part-owner in the business, not just a trader of its stock price.
When you focus on a few quality companies and hold them patiently, you allow compounding to work. Over time, steady profit growth and reinvested earnings can create far greater wealth than any short-term trading.
Lynch showed that real success in investing does not come from doing many things quickly, but from doing a few things carefully and then giving them time to grow.
Start with what you see around you. Pay attention to the products and services people use every day. Strong companies often begin right in front of you.
Understand the business clearly. Make sure you know how the company makes money and why people keep choosing it. If you cannot explain it in simple words, do not rush to buy it.
Let the numbers confirm the story. Look for steady sales growth, rising profits, and low or manageable debt. Good numbers show real strength, not just a nice story.
Stay calm and ignore the daily noise. Do not let short-term price swings or market tips push you to act quickly. Focus on how the business is performing over time.
Pick a few good companies and hold them patiently. You do not need to own many stocks. Choose a few strong ones you trust, and let time and compounding work for you.
Note: We have relied on data from the annual reports throughout this article. For forecasting, we have used our assumptions.
Parth Parikh has over a decade of experience in finance and research, and he currently heads the growth and content vertical at Finsire. He holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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