The amateur investor is free from any list of rules that make life so difficult for the professionals and he is able to buy into small and medium-sized firms offering the greatest percentage gains, rather than diversify into poorly understood shares.
He/she need only own a few shares; which permits time to understand an industry and look for exciting new developments; he/she doesn’t have to explain to a committee why or what he is buying or selling; he doesn’t have to compete with other investors or publish his results on a quarterly basis.
In Peter Lynch’s judgement the amateur who concentrates on the study of the companies in an industry he or she understands can outperform 95 per cent of professional fund managers.
The private investors’ edge comes from the knowledge they are able to accumulate about specific companies and industries. They are able to observe great growth prospects long before the professional get to hear about them.
Investors can first encounter 10-baggers quite close to home. The average person comes across a good investing prospect two or three times a year just by being out and about.
Peter Lynch is a great believer in getting investment ideas directly from experience, and one of his favourite sources is the shopping centre near his home town. Any amateur investor could easily do the same in their own patch – browse through scores retail/hospitality enterprises.
He thinks going through the Mall is a great form of fundamental analysis where the investor can see a long line of potential investments all neatly arranged side by side for the convenience of shoppers for equities. This is a far more valuable way of spending time than attending investment conferences.
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I'm a full-time investor running my portfolio. I invest other people's money into the same shares I hold under the Managed Portfolio Service at Henry Spain. Each of my client's individual accounts is invested in roughly the same proportions as my "Model Portfolio" for which we charge 1.2% + VAT per year. If you would like to join us contact Jackie.Tran@henryspain.co.uk
investing is about making the right decisions, not many decisions.