Peter Lynch vs UK stock market

[DelayedInvestor]

I read the Peter Lynch book 'One up on Wall Street' a while back and I thought that the central premise was an alluring one. Lynch is essentially a value investor in the Warren Buffett mode, and his main point is that the individual investor has a significant advantage over institutional investors and other large funds in that they can utilise knowledge of the companies that they encounter in their daily lives. In particular, an individual investor can see that a company is doing well before professional analysts can.

However, whilst I can see why this approach might work in the US I wonder if it's feasible in the UK. For me there are two key differences.

(i) Geography: In the US it's possible that a company could be relatively successful in several states but be unknown in New York, and thus not visible to Wall street analysts. Whereas in the UK a company that's successful in Manchester/Liverpool is highly unlikely to be unknown in London.

(ii) Company Size: There's a good chance in the US that even a relatively small company will be publicly traded. This seems not to be the case in the UK. For instance, I recently bought a pushchair for my son and many of the people I know have bought the same one. The company that produces the pushchair - Out'n'About - is a smallish local company. On the surface of it this is a classic Lynch type situation. However, the company is private limited. I can't help but feel in the US this company would be publicly traded.


Fundamentally, the reason I like Lynch's idea is that it offers the individual investor the possibility of overcoming the efficient market principle. In particular, the principle indicates that since all information available to a market has been priced into an assets valuation already, you can only do better by having information that the market doesn't. Local knowledge could constitute this extra information. But I'm not sure that's the case in the UK.

I'd be really interested in hearing the views of anyone who looks at this differently.

[Dod101]

Occasionally personal experience and/or knowledge helps even in the UK. I was in the insurance business all my life and there are certain companies that I would not touch and others which I think are pretty good. I also understood what Phoenix Holdings and Chesnara were up to quite early on and that got me into them a long while back. I am not claiming any knowledge that others cannot have but sometimes your own experience workwise or whatever can help.

I too have read both of Peter Lynch's books and they are I think classics and fairly timeless. (The other is called Beating the Street)

I cannot really comment on your other points.

Dod

[bluedonkey]

I had knowledge of a company in my industry. It was generally regarded as a bit of a luddite, so I avoided it. It turned out to be "the one that got away".

[JohnW]

his main point is that the individual investor has a significant advantage over institutional investors and other large funds in that they can utilise knowledge of the companies that they encounter in their daily lives.

That premise is questionable, surely? Don't the people who work at investing institutions go to the mall and see crowds streaming into Nike shops before anyone's heard of Nike?
He writes entertainingly, with self-deprecation, but do we think he wasn't a careful shrewd analyst? No, as you said, he was a value investor; that's a style that needs research.
His success was likely multi-factorial, including timing. He got out at the right time; his fund beat the index by about 2% in the last several years he was running it.
But on the spectrum of how much 'daily life observations' contributes to investment success, if it's mostly responsible then almost everyone would be able to do it because we all make daily observations. That few people beat the index from 'daily life observations' suggests it's not to be relied on, UK or any largely efficient market.

[TahiPanasDua]

his main point is that the individual investor has a significant advantage over institutional investors and other large funds in that they can utilise knowledge of the companies that they encounter in their daily lives.

That premise is questionable, surely? Don't the people who work at investing institutions go to the mall and see crowds streaming into Nike shops before anyone's heard of Nike?
He writes entertainingly, with self-deprecation, but do we think he wasn't a careful shrewd analyst? No, as you said, he was a value investor; that's a style that needs research.
His success was likely multi-factorial, including timing. He got out at the right time; his fund beat the index by about 2% in the last several years he was running it.
But on the spectrum of how much 'daily life observations' contributes to investment success, if it's mostly responsible then almost everyone would be able to do it because we all make daily observations. That few people beat the index from 'daily life observations' suggests it's not to be relied on, UK or any largely efficient market.

John W,

Your premise that many people would do it if it was obvious has got to be right. But I did do it, only once, and it was a big winner. It proves nothing to me though.

Having viewed Greggs over the years as a stodgy ultra-boring performer on the high street, I happened to notice that they had had a makeover. Gone was the dingy store and in was a bright modern interior and product changes that were obviously attracting more customers. I bought a full holding and sold half near the top of their recent price surge. It was hugely profitable.

However, back to your point, I don't see other similar candidates and am unlikely ever to be able to repeat the feat.

TP2.

[DelayedInvestor]

He writes entertainingly, with self-deprecation, but do we think he wasn't a careful shrewd analyst? No, as you said, he was a value investor; that's a style that needs research.

Sorry, just to clarify. I wasn't suggesting that observations from daily life could be used instead of careful analysis. Rather that the observations could lead you to the companies worth analysing. There are thousands of companies in the UK so we don't have time to study all of them. Just using fundamentals filtering feels like you'd end up with the same companies as everyone else who uses that approach. It strikes me that you need something else.

However, back to your point, I don't see other similar candidates and am unlikely ever to be able to repeat the feat.

Yeah, that's a definite possibility. Maybe it'll occur a few times in your investment career but not enough to be a viable strategy.

[GoSeigen]

I read the Peter Lynch book 'One up on Wall Street' a while back and I thought that the central premise was an alluring one. Lynch is essentially a value investor in the Warren Buffett mode, and his main point is that the individual investor has a significant advantage over institutional investors and other large funds in that they can utilise knowledge of the companies that they encounter in their daily lives. In particular, an individual investor can see that a company is doing well before professional analysts can.

David Stredder, formerly posting as Carmensfella at the Motley Fool specialised in this style of investing. He did a huge amount of research though, and had plenty of duds along with the successes.


GS

[DelayedInvestor]

David Stredder, formerly posting as Carmensfella at the Motley Fool specialised in this style of investing. He did a huge amount of research though, and had plenty of duds along with the successes.

Cheers, GoSeigen. I'll look up some of his old posts.

[GoSeigen]

David Stredder, formerly posting as Carmensfella at the Motley Fool specialised in this style of investing. He did a huge amount of research though, and had plenty of duds along with the successes.

Cheers, GoSeigen. I'll look up some of his old posts.

Alas, the posts are probably gone but he's a well known character and I think still posts at stockopedia and maybe tweets too. Very affable chap who will probably give you time if you call him too... Others might have more up-to-date info.

GS

[PinkDalek]

Alas, the posts are probably gone but he's a well known character and I think still posts at stockopedia and maybe tweets too. Very affable chap who will probably give you time if you call him too... Others might have more up-to-date info. ...

Has posted on TLF (no longer for reasons I shan't mention) search.php?author_id=780&sr=posts.

Involved with https://melloevents.com/ (which isn't an advert but factual). Many old Fools attend(ed) but presently they've gone Virtual .

Posts at ADVFN as davidosh (I don't post there and this is merely an informative).

Generous with the rounds at the old TMF London Social events.