It’s Time to Double Down on Casti Connubii, by Daniel B. Gallagher

Legendary mutual fund manager Peter Lynch teaches that investors should “let their winners pay for their losers.” In other words, hold on to companies that show good financials and reasonable prospects for growth, regardless of the share price. If you see a stock go up 20-30 percent, don’t necessarily conclude that it’s time to sell. You have to forget about the price and reexamine the fundamentals because there may be ample room for growth. Similarly, if a stock drops 20-30 percent, it doesn’t necessarily mean it’s time to accumulate more. The only way to know is to take a deeper dive into the company and see if it’s still undervalued.

Moreover, if you want your portfolio to outperform the market, you should keep it concentrated. After all, if you’re going to buy fifty different stocks, why not just buy the whole index? That might at least give you average returns. Yet, wouldn’t it be better to buy five or six undervalued stocks and then wait? Similarly, when it comes to business strategy, “diversification,” Lynch says, is “diworsification.” In other words, a company should concentrate on doing what it does best rather than squandering capital by acquiring a bunch of unrelated businesses. …

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