If you want to invest for big profits on a consistent basis – if you want to use the markets to build substantial and lasting wealth for yourself and your family – then it’s essential that you learn from the true masters of the art. Over the next couple of weeks, we’ll examine the strategies of five of the world’s greatest investors.

These five men aren’t just great, wise and talented investors… these five are true one-off financial geniuses. All are exceptional analysts and gifted decision makers. All have built – and maintained – vast fortunes over many years. But at the same time each has a unique story and something very different and very valuable to teach us.

World’s Greatest Investors: Peter Lynch: Contrarian “ten baggers”

While Peter Lynch was in charge of Fidelity’s Magellan fund – between 1977 and 1990 – it posted an average annual return of 29%.

No fund manager in history has ever run a fund of its size (by the end of the period it was worth $14bn) so successfully for such a long time. He puts this achievement down to a few simple things, mainly the skill of finding investment opportunities in areas you’re already familiar with.

He made a point, for example, of looking closely at stocks for which he or his family had “positive personal experiences as consumers”, says Peter Temple in the FT. He also looked for the simplest of businesses to invest in, famously suggesting that one should: “Go for a business that any idiot can run – because, sooner or later, any idiot probably is going to run it.”

Having spotted a possible company, Lynch looks at three criteria: Profitability, price, and whether or not it has a good business model.

He likes companies with strong assets backing them and forward p/e ratios well below forecast earnings per share. He prefers firms with strong growth potential, but at the same time is wary of those with unsustainable growth rates. “As a rule of thumb, he generally looked for earnings growth of between 15% and 30%,” says Debiprasad Nayak in The Economic Times Online.

To Lynch, however, financial fundamentals were a secondary thing to look at. First, he liked to understand the company thoroughly. He visited shopping malls to see how shops were doing, check which brands were selling and at what kind of prices. Then he looked at the balance sheet.

Lynch’s book on investing, One Up On Wall Street, was published in 1989. But that doesn’t diminish its relevance today. The book introduces the idea of “ten-baggers”, the Holy Grail of investing, says Luke Johnson in The Sunday Telegraph. Ten-baggers are shares that investors can make ten times their money on within about five years. Finding these meant that, on the whole, Lynch avoided investing in large, well-established businesses and opted for less well-known ones or turnaround stories. He was also a contrarian investor. Like many other great investors, he sought out stocks that everyone else was ignoring.

One final piece of Lynch advice to retail investors. You should think of your stocks as you’d your children: You have limited time, so you can’t keep an eye on too many of them at once. Lynch thinks that five stocks are enough for most of us to keep track of.

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