Develop a Search Strategy 83Investors too often underestimate the power of common knowl-
edge in providing excellent investment ideas and opportunities.
Many people believe that it is too good to be true that a company or
product you like so much could turn out to be a wonderful invest-
ment opportunity. Such thinking is very one - sided and ignores a
central tenet of successful investing: staying within your circle of
competence. For example, I do not believe that Whole Foods will
be less profi table fi ve years from now. If and when the stock price
starts trading at levels that completely discounts any future growth,
I get excited because I now have the opportunity to own part of a
business that I am confi dent will be more valuable in the future.
Further, this confi dence and conviction supersedes emotions in
the investment - making process. As a result, the investment is made
based on rational considerations. When this mental process occurs,
you can easily ignore short - time gyrations in stock price and instead
focus on the long - term picture.
Peter Lynch, the legendary mutual fund manager at Fidelity ’ s
Magellan Fund between 1977 and 1990, made some of his most
spectacular investments just by using a little common knowledge
and nothing more. He invested in Taco Bell after being impressed
with the food; he invested in Apple after seeing his kids and their
friends own an Apple computer; La Quinta Motor Inns after a
friend at Holiday Inn told him about it. In fact, Lynch praises his
wife as being one of his best investment sources. She led him to
L ’ eggs, which turned out to be one of the most successful consumer
products of the 1970s. Before working at Fidelity, Lynch was a secu-
rities analyst and studied the textile business extensively. Yet all his
work failed to uncover L ’ eggs. Instead, his wife discovered it at the
grocery store.
For those of us too young to remember, L ’ eggs are women ’ s
panty hose sold in plastic egg packaging, usually positioned in gro-
cery stores near the checkout counter. When Lynch discoveredCH005.indd 83CH005.indd 83 9/2/09 11:08:06 AM9/2/09 11:08:06 AM