Peter Lynch's investing principals

Invest in What You Know
Lynch's key concept is that you can spot investment opportunities all around you by concentrating on what you already know and are familiar with. Lynch always invested in industries he understood, even if that business operated in a sector or industries that was forecasted to deliver lackluster performance. One such example was his investment in Chrysler in the 1980s. Chrysler was near bankruptcy at that time, but after seeing prototypes of its new minivan, Lynch made Chrysler one of Magellan's top holdings. Chrysler more than tripled in price in subsequent years.

Seize a Good Opportunity
Lynch was always on the hunt for above-average profit opportunities. Although he liked value stocks like Chrysler, he also invested in fast-growing up-and-comers such as Hanes Co. Hanes' stock appreciated six-fold while Magellan held it.

Profitability, Price, and a Good Business Model
Lynch generally looked for three qualities in a good company: profitability, price, and a good business model.

Check the key numbers.
1. If you are excited by a particular product or service, ensure that it accounts for a sufficient percentage of total company sales and that it makes a significant contribution to profits.
2. Favor companies with a strong cash position
3. Favor companies with a forward PE ratio well below their forecasted EPS growth rate
4. Avoid companies with high debt-to-equity ratios.
5. Avoid slow growers and cyclical stocks.

Do Not Hold Cash
You should always stay fully invested, otherwise you will likely miss out on market upswings. Ignore the ups and downs of the market. Your profits and losses do not depend on the economy as a whole. Buy whenever you come across an attractive idea with a compelling story behind it.

Know When to Sell
Sell your bellwether holdings when their PEGs (calculated as PE dividend by a firm's projected earnings growth rate) reach around 1.2-1.4, or when a company's long-term growth rate starts to slow.

Sell fast growers when there appears to be no further scope for expansion, or when expansion starts to produce only disappointing sales and profits growth, or when their PEGs reach around 1.5-2.0.

Sell asset plays when they are taken over, or when assets that are sold off fetch lower-than-expected prices.