The Rational Investor #022: Peter Lynch on Focusing on the Long-Term

Happy Saturday to you,

Welcome to the 22nd edition of The Rational Investor Newsletter.

Today’s quote comes from a video of Peter Lynch from a speech he gave on October 7, 1994. The quote occurs at about the 38-minute mark.

What I love about seeking the wisdom of the world’s greatest investors is that they focus exclusively on the big picture and make investing seem so simple—because successful investing IS simple, as you’ll see in Lynch’s thoughts below. It’s Main Street investors who make investing complicated.

Onto the main event…

Here’s Peter Lynch on Focusing on the Long-Term:

The market is going to go up and down. Human nature hasn’t changed a lot over the last 25,000 years. Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. I think that’s a great opportunity if people can understand what they own…Basic corporate profits have grown about 8% a year, historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years. So I think — the market is about 3,800 today, or 3,700 — I'm pretty convinced the next 3,800 points will be up; it won't be down. The next 500 points, the next 600 points — I don’t know which way they’ll go. So, the market ought to double in the next eight or nine years. They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That's all there is to it.

In case you’re wondering, Peter Lynch was actually wrong about the market’s performance. Since October 1994, the market has risen by almost 10.5% per year, so he understated the performance that would follow his wise words.

But I want to be sure you take note of the biggest takeaway that we, as Main Street investors, can put to good use:

Lynch willingly admits that he doesn’t know which direction the next 20% swing will be, but he’s confident in which direction the next 100% swing will be. If we want to follow in his footsteps, we’d be wise to stay focused on the latter rather than trying to predict the former.

Again, great investors keep it simple. We see this in their thoughts time and again.

Thanks for reading. I’ll be back again next week with more timeless wisdom from great investors.

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