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Invest in Your Backyard: Peter Lynch's Case for American Stocks

By sagebytes —

PETER LYNCH'S INVESTMENT BEST PRACTICES

Invest in America First

Lynch argues strongly for prioritizing investments in American companies rather than rushing to foreign stocks. As the former manager of the Magellan Fund and one of the most successful investors of his time, he provides several compelling reasons:

American Companies Are Competitive

  • U.S. companies have become increasingly competitive over time
  • Many American industries have transformed and revitalized themselves
  • Examples: U.S. railroads rebounded, Chrysler's minivan success, agricultural innovation, and steel industry revival

U.S. Market Advantages

  • Wall Street provides a level playing field that "exists almost nowhere else"
  • Reliable systems for trade settlements, dividend payments, and earnings reporting
  • Strong regulatory protection from the SEC compared to foreign markets
  • More transparent financial reporting than foreign markets

Finding Your Edge in Familiar Territory

  • "It's in the backyard that investors find their edge"
  • Domestic investors have better information about local companies
  • Understanding the business model is easier with companies in your own country

Growth Opportunities

  • NASDAQ offers numerous promising small growth companies
  • Europe lacks similar emerging-growth opportunities
  • Japanese small-company stocks are often overpriced

Avoid Investment Bandwagons

  • Be wary of investment trends like the rush to foreign stocks
  • Look for value rather than following popular investment movements
  • Don't invest "willy-nilly" in foreign stocks just because it's fashionable

Research Matters

  • Foreign investments require more extensive research
  • Managing foreign stocks is "a much harder job than managing a domestic portfolio"
  • Invest in what you understand rather than taking uninformed risks

Industry Leaders Worth Considering

Lynch specifically mentions several American companies he considers successful:

  • Nike, Walt Disney, Ingersoll-Rand, Sallie Mae, Federal Express
  • General Re, General Mills, General Electric
  • Supercuts, Au Bon Pain (his "recent favorites" at time of writing)

Peter Lynch retired in 1990 from managing the Magellan Fund, the best-performing of all mutual funds over a fifteen-year period. This one-pager is based on his letter making the case for investing in American companies.