Buy and Hold Boomer Say You? Where’s Peter Lynch When You Need Him?

Remember when Peter Lynch, formerly of Fidelity, made it all so easy:

[Peter Lynch’s] most famous investment principle is simply, “Invest in what you know,” popularizing the economic concept of “local knowledge”. This simple principle resonates well with average non-professional investors who don’t have time to learn complicated quantitative stock measures or read lengthy financial reports. Since most people tend to become expert in certain fields, applying this basic “invest in what you know” principle helps individual investors find good undervalued stocks.

Lynch uses this principle as a starting point for investors. He has also often said that the individual investor is more capable of making money from stocks than a fund manager, because they are able to spot good investments in their day-to-day lives before Wall Street. Throughout his two classic investment primers, he has outlined many of the investments he found when not in his office – he found them when he was out with his family, driving around or making a purchase at the mall. Lynch believes the individual investor is able to do this, too.

There might trouble with the technique upon which millions of boomers bet their retirement? It appears so:

Aging baby boomers may hold down U.S. stock values for the next two decades as they sell their investments to finance retirement, according to researchers from the Federal Reserve Bank of San Francisco. Americans born between 1946 and 1964 are beginning to retire as the U.S. stock market is still recovering from the financial crisis that began in 2007 with the collapse of the subprime-mortgage market. The timing is ‘disconcerting’ and, since stock prices have been closely tied to demographic trends in the past half century, “portends poorly for equity values,” adviser Zheng Liu and researcher Mark Spiegel wrote in a paper released by the bank today.

Ah, the nostalgic days of wandering the local mall and going through Spencer’s “Adult only” section as investment panacea. Life used to be so much easier when you didn’t have to think…

More: http://www.frbsf.org/publications/economics/letter/2011/el2011-26.html

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3 thoughts on “Buy and Hold Boomer Say You? Where’s Peter Lynch When You Need Him?

  1. Lynch confused brains with a bull-market…everyone was a genius 82 – 99, until they weren’t anymore…

  2. If you follw Lynch’s advice, your investments become dependent on your own daily experiences.

    For example, a guy living in his mother’s basement watchin porn and eating Doritos all day, might apply Lynch by investing in adult web sites and Frito Lay. Whereas a nerd who lives at Radio Shack might bet the whole wad on retail electronics.

    This kind of subjective relativity is NOT the way to ensure your future as you can’t even calculate a positive expectancy because the process is random.

    Although, I’d guess that the porn investor either made a fortune or didn’t really care if he lost it all.

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