Legendary investor Peter Lynch says “far more money has been lost by investors preparing for corrections” and he’s spot on

Peter Lynch is an investment legend who’s right up there with the great Warren Buffett. He’s famous for averaging a market-crushing return of nearly 30% during his time running the show at the Fidelity Magellan Fund. He’s also written must-read books, including One Up on Wall Street and Beat the Street, coining the term “Tenbagger,” which represents a high-growth company whose shares are capable of scoring 10x returns over the long haul.

With a long-term mindset and patient, disciplined approach, which, in many ways, rhymes with Buffett’s investment philosophy, Lynch is one of those investors many market newcomers should model themselves after.

In this piece, we’ll go into what may be the most invaluable piece of wisdom he’s shared with investors. Lynch is no fan of timing markets. He thinks it’s best to hold shares of great companies through even the most volatile of market climates.

Peter Lynch is all about long-term investing

Of course, holding stocks (or buying more shares) through corrections or crashes sounds easy on paper. But when a crisis rattles markets, it can be difficult for some new investors to handle the sudden choppiness. It’s not just selling at the wrong times that can haunt investor’s returns for the long haul, though. Readying for corrections and being sidelined can also lead to missing out on gains in a bull market.

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” said Lynch.

Indeed, this is one of the legendary Lynch quotes investors should have written on their walls. It’s a profound statement and one that’s probably all too familiar at a time like this. You’ve probably heard from many banks, pundits, and experts that a correction is long overdue. Undoubtedly, the S&P 500 is in the middle of a two-year-long hot streak. And while it will eventually end, perhaps with a correction, the fact remains that a vast majority of correction timers will get the timing wrong. And they could miss out on additional gains to come.

There’s a cost to timing the market and waiting for corrections.

Simply put, sitting in cash, bonds, or some other low-returning security, waiting for a correction to hit comes with a hefty opportunity cost—one that many new investors may discount or be completely oblivious of. Of course, staying invested or buying more shares after two incredible years of 20% gains may feel like you’re breaking Buffett’s rule by being greedy while others around you are greedy when you should be “fearful when others are greedy,” 

While being fully invested in stocks at any given time could leave you unable to pursue bargain opportunities on the inevitable dips and corrections, I do think new investors should also take into account the monthly income that is flowing in that can be used to buy stocks on eventual corrections in the stock market.

Indeed, everyone’s asset allocation will differ based on their age, comfort levels, and other factors. But the key takeaway is that you shouldn’t feel the need to overreact because you’ve heard one too many predictions for a market correction on television. If those correction calls get to you, and you’re feeling enticed to react by selling shares or postponing your monthly equity purchases, do remember that many short-term market timers get it wrong.

It wasn’t too long ago that bears were calling for a recession to hit following Fed interest rate hikes. It never happened. Instead, one of the best two-year runs in the S&P 500 followed shortly after. That’s why it’s so risky from an opportunity cost perspective to focus on a “guess” on the near- or medium-term trajectory of the market rather than acknowledging what one cannot know and simply playing the long-term game.

The bottom line

The path for the market in any given month, year, or few years is not knowable. That’s why it’s far better to leave correction timing for others because, at the end of the day, you shouldn’t hinge your investment future on a fear-driven hunch. That doesn’t mean you shouldn’t have any cash on the sidelines, but it does mean you should focus on the asset allocation that’s right for you and stick with it for the long run.