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Investment approach of Lynch

Investment approach of Lynch:

Peter Lynch, the best known mutual fund manager, also adopts the words of Benjamin Graham in the sense that he looks at companies not from the perspective of how the stock prices move but what he observes through his own eyes. He notices what products are doing well in the market and what food or brand of shoe is being worn by the people to understand which product is actually doing well. He also believes in investing in the fastest growing company in the slowest growing industry which makes for the long term vision of this man. Another important strategy adopted by him is the analysis of a company through the PEG ratio or the price earnings growth ratio. This ratio divides the company’s P/E ratio by the historical growth rate to find out if the stock is selling cheaper. In his opinion, the faster a firm grows, the higher one should be willing to pay for it. Other than this approach, he analyses the debt equity ratio, the cash flow and the inventory to sales ratio to determine which company to buy. But he does not keep himself to buying a certain type of stocks. He goes for all types of stocks but uses different strategies for different categories.

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