Legendary fund manager Peter Lynch says many investors buying individual stocks today are getting it wrong. His investment strategy has long been to buy what you know — and look for companies poised to grow. He said he still believes that approach works, but investors must do their homework. “They are careful when they buy a refrigerator or an airplane flight … but they’ll hear about a stock on a bus and they’ll put $5,000 or $10,000 on it,” Lynch said Tuesday in an interview with CNBC’s ” Squawk Box .” “You really have to be careful,” he said. “Look at the company. Look at the balance sheet. What is the reason the stock should be higher?” Lynch, 79, managed Fidelity’s Magellan Fund from 1977 to 1990 and is now vice chairman, Fidelity Management & Research. During his time at Magellan Fund, the fund saw annualized return of 29.2% and its assets under management jumped from $20 million to $14 billion. When looking for the right name, find a company that is going to do well for about the next five years. In addition to those growth stories, look for companies that you expect to turn around. The payoff will come when the bad business improves. As that happens, the stock will rise, he said. “When companies go from crappy to semi-crappy, the stock goes up. When it goes from semi-crappy to good, they go up. When business gets to be terrific, get out,” Lynch said.
