invest.md
---
version: alpha
name: Lynch Growth
slug: lynch-growth
aliases:
- Peter Lynch Growth
- Invest In What You Know
description: "Understandable growth investing, stock classification, PEG discipline, balance sheet checks, and story monitoring"
investor: Peter Lynch
style: growth+value+consumer
timeHorizon: 1-5 years
decisionCadence: quarterly
assetClasses:
- public equities
circleOfCompetence:
- consumer observation
- growth stocks
- small and mid caps
- turnarounds and cyclicals
universe:
geographies:
- developed markets
instruments:
- stocks
marketCap: small-cap to large-cap
liquidity: medium-high
dataRequirements:
- financial statements
- store/product data
- debt and cash flow data
marketRegime:
preferred: underfollowed growth with improving fundamentals
avoid: story stocks with no earnings path or excessive debt
posture: curious, practical, evidence-based
signals:
fundamental:
earningsGrowth:
weight: high
direction: higher-is-better
frequency: quarterly
source: earnings reports
description: Growth should show up in earnings and cash flow.
pegRatio:
weight: high
direction: lower-is-better
frequency: quarterly
source: valuation and growth estimates
description: Price should be reasonable relative to growth.
balanceSheet:
weight: high
direction: stable-is-better
frequency: quarterly
source: financial statements
description: Debt can kill turnarounds and cyclicals.
storyImprovement:
weight: high
frequency: quarterly
source: company metrics and field observation
description: The original story should keep improving.
filters:
understandableStory: required
financialsConfirmStory: required
balanceSheetAcceptable: required
valuationReasonable: required
pureHypeNoEarnings: disqualifier
sizing:
maxPosition: diversified best ideas
maxPortfolio: many names acceptable if each story is tracked
convictionThreshold: medium-high
scalingRule: add as story and earnings improve
riskPerTrade: thesis-based
risk:
stopLoss: story-based
maxDrawdown: tolerate volatility if story intact
correlationLimit: avoid all positions in one consumer cycle
leverage: none
positionCutRule: sell when story deteriorates, valuation gets silly, or balance sheet worsens
metrics:
revenueGrowth:
frequency: quarterly
alert: growth decelerates below thesis
earningsGrowth:
frequency: quarterly
alert: earnings fail to confirm story
debt:
frequency: quarterly
alert: leverage rises dangerously
playbooks:
lynchMemo:
verdictOptions: Buy / Watchlist / Story Not Proven / Too Expensive / Pass
requiredSections: category,story,growth,valuation,balanceSheet,risks,invalidation
sources:
- docs/youtube-list.md
- docs/podcast-list.md
- docs/reading-list.md
- Peter Lynch, One Up on Wall Street
- Peter Lynch, Beating the Street
- Fidelity Magellan public history
---
# Lynch Growth
Great ideas can start in everyday observation, but they only become investments after the story is confirmed by financials and bought at a reasonable price.
## Philosophy
Invest in what you can understand, not merely what you use. The edge is seeing a company early, then verifying growth, unit economics, balance sheet, and valuation before Wall Street fully appreciates the story.
## Universe & Regime
- **Asset classes**: Public equities.
- **Universe**: Understandable companies with observable products, growth, or turnaround evidence.
- **Preferred regime**: Underfollowed growth and improving fundamentals.
- **Avoid**: No earnings path, excessive leverage, fantasy TAM, stale story.
- **Posture**: Curious but financially disciplined.
## Signals
- **Earnings Growth** (high): The story must translate into earnings.
- **PEG Ratio** (high): Growth should not be wildly overpaid.
- **Balance Sheet** (high): Debt matters, especially in cyclicals and turnarounds.
- **Story Improvement** (high): Same-store sales, unit growth, margins, new markets, or turnaround milestones.
## Filters
- **Understandable Story** (required): Explain in plain language.
- **Financials Confirm Story** (required): Observation without numbers is not enough.
- **Balance Sheet Acceptable** (required): Avoid debt traps.
- **Valuation Reasonable** (required): Growth at any price is dangerous.
- **Pure Hype No Earnings** (disqualifier): Pass.
## Analysis
### 1. Classify The Stock
Slow grower, stalwart, fast grower, cyclical, turnaround, or asset play.
### 2. State The Story
What has to happen for the stock to work?
### 3. Verify The Numbers
Revenue, earnings, margins, debt, cash flow, and valuation.
### 4. Define Story Breaks
What data would prove the story is no longer improving?
## Position Sizing
- **Initial size**: Start when story and valuation align.
- **Add rule**: Add as evidence improves.
- **Max size**: Larger for stalwarts/fast growers with clean balance sheets.
- **Cash rule**: Wait when story is good but price is excessive.
## Risk Management
- **Primary risk**: Falling in love with a story after facts change.
- **Stop**: Story-based.
- **Correlation**: Avoid too many same-theme consumer/growth bets.
- **Leverage**: None.
## Execution
### Entry Rules
1. Story is understandable.
2. Financials confirm it.
3. Valuation is reasonable relative to growth.
4. Balance sheet is safe enough.
### Exit Rules
1. Story deteriorates.
2. Growth slows without valuation support.
3. Debt or dilution worsens.
4. Price discounts unrealistic future.
## Monitoring
- **Cadence**: Quarterly.
- **Metrics**: Sales, earnings, margins, unit growth, debt, PEG.
- **Alerts**: Story miss, accounting issue, debt spike, valuation blow-off.
## Playbooks
### Lynch Memo
Return `Buy`, `Watchlist`, `Story Not Proven`, `Too Expensive`, or `Pass` with category, story, growth, PEG, balance sheet, risks, and invalidation.
## Canonical Cases
- **Taco Bell**: A classic Lynch-style consumer growth case where simple observation and unit expansion translated into investment performance.
- **Dunkin' Donuts**: Familiar product, understandable growth, and repeat purchase behavior as a source of investable insight.
- **La Quinta Motor Inns**: A field-research example: observing customer behavior and business economics before broader recognition.
- **Chrysler turnaround**: A stock-category lesson: turnarounds require balance-sheet and milestone discipline.
Study these cases for stock classification, simple story, financial confirmation, and story monitoring.
## Do's and Don'ts
- Do start with understandable products.
- Do verify numbers.
- Do classify the stock type.
- Don't buy a story without earnings.
- Don't ignore debt.
- Don't overpay for excitement.
## Podcasts
- Shared podcast list with Spotify links: ../../docs/podcast-list.md
## YouTube
- Shared YouTube list: ../../docs/youtube-list.md
## Reading List
- One Up on Wall Street: https://www.amazon.com/One-Up-Wall-Street-Already/dp/0743200403
- Beating the Street: https://www.amazon.com/Beating-Street-Peter-Lynch/dp/0671891634
- Shared reading list: ../../docs/reading-list.md
## Source Notes
This model is distilled from Peter Lynch's books and Fidelity Magellan history.
SKILL.md
---
name: lynch-growth
description: "Use when evaluating Peter Lynch-style growth stocks: invest in what you can understand, classify the company type, check growth runway, PEG, balance sheet, and whether the story is still improving."
invest: ./invest.md
---
# Lynch Growth
Use this skill to apply Peter Lynch-style common-sense growth investing: find understandable companies early, classify the stock type, connect product observation to financial evidence, and monitor whether the story keeps improving.
## When To Use
- Consumer/product-led stock discovery
- Growth stock classification
- PEG and growth runway analysis
- Small/mid-cap compounder review
- Whether a familiar product can become an investable stock
Trigger phrases include `Peter Lynch`, `invest in what you know`, `tenbagger`, `PEG`, `stalwart`, `fast grower`, and `story stock`.
## Process
1. Classify the company: slow grower, stalwart, fast grower, cyclical, turnaround, or asset play.
2. State the simple story in one paragraph.
3. Verify the story with revenue, earnings, unit economics, store/product expansion, and balance sheet.
4. Compare valuation to growth using PEG and conservative assumptions.
5. Define story deterioration signals.
## Output Format
```md
# Lynch View: [Company]
## Verdict
Buy / Watchlist / Story Not Proven / Too Expensive / Pass
## Stock Category
## Simple Story
## Growth Evidence
## Valuation / PEG
## Balance Sheet
## What Would Change The Story
```
## Guardrails
- Do not buy a product you like without checking financials.
- Do not overpay for a good story.
- Do not ignore debt in turnarounds or cyclicals.
## Questflow Use
In Questflow, this skill is best used as a consumer/growth discovery and watchlist module.