Anyone who follows this channel knows that I am a huge fan of Peter Lynch. Lynch rose to prominence by running the legendary Fidelity Magellan Fund and writing books such as One Up on Wall Street, one of my top five favorite books on investing. During his 13-year career at Fidelity, the fund averaged annual returns of nearly 30%. That means $1,000 invested in his fund turned into $30,287 in just over a decade. With a track record like that, it's clear that if you want to learn more about investing, you should learn from Peter Lynch. These impressive results are why I frequently incorporate the lessons I learned from studying Peter Lynch into my personal investing and into my job as an investment analyst at a large mutual fund based in New York City. In this video, we'll watch one of my favorite clips from Lynch where he talks about how one of his best investments came from "buying on the dip" rather than panic selling. After the clip, we'll break down this strategy in more detail and talk about how I used it to find an investment that more than tripled my investment over the last two and a half years. The ultimate goal is for you to apply these investing lessons to your own portfolio. But first, be sure to like this video and subscribe to the channel if you haven't already, because my goal is to help you become a better investor by studying the world's greatest investors. Without further ado, let's get started!

Let's take a moment to analyze the situation Peter Lynch was in when he invested in Kaiser Industries, because when we do, you will understand why Lynch had the courage to buy when the company's price was down, instead of panic selling when the stock's value dropped. For background, Kaiser Industries was a conglomerate. Simply put, it was a large company that owned many smaller companies. Kaiser Industries owned companies like Kaiser Aluminum, Kaiser Steel, and Kaiser Cement. Lynch was able to identify this company as undervalued and an attractive investment. He bought a large amount of shares at 14 per share. However, after the purchase, the stock price continued to fall quite sharply, down to 3 per share. Why didn't Peter Lynch panic sell like most investors did at the time? Because he really understood what the company was doing and continued to believe that the company's underlying fundamentals remained strong despite what was happening to the stock price. That's why he kept buying more shares as the price fell. When the company hit its low of $3 per share, it was so undervalued that management was forced to break up the corporation and distribute the companies it owned to the people who owned the stock. Shareholders received cash from the sale of shares in the affiliated companies. For every 100 shares of Kaiser Industries, a shareholder received 25 shares of Kaiser Aluminum, 13 shares of Kaiser Steel, and 7 shares of Kaiser Cement. When this happened, the value of the company increased dramatically, making this investment one of Lynch's most successful investments of all time.

Here are the key takeaways for investors: 1) Really understand the company behind your stocks. When you view stocks as companies with underlying business fundamentals, rather than just pieces of paper whose price fluctuates, you can better handle price fluctuations. That leads me to the second key takeaway: If the underlying business fundamentals remain unchanged but the stock price is declining, it could be a sign of a great buying opportunity, either to initiate a new position in a stock or to add to your holdings in that stock.

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