Peter Lynch was an exceptional investor. He took over the Fidelity Magellan fund in 1977 and over the next 13 years increased the assets under management from $18 million to $14 billion. This was not just a triumph of marketing — over this period he averaged a return of 29% a year, doubling the return of the S&P 500.

But he is also famous for a spectacularly awful piece of advice: “Invest in what you know.”

This is probably an example of a great player who isn’t a great coach. It seems likely that Lynch had excellent investing intuition and that when he “knew” something, it was actually something worth knowing. Most people have no such insights. This isn’t just because, to misquote G.H. Hardy in A Mathematician’s Apology, most people have no real talents at all. The problem is that almost any such fundamental insight is exactly the type that the market has already priced in.

This type of investing is worse than useless. It actively directs investors toward stocks they think they understand — but where they’ve missed a key point that the market hasn’t.

Good stocks tend to have certain measurable traits: low beta, high value, small size, high quality, strong momentum. There’s a century of research behind these conclusions.

Investing in “what you know” might produce the occasional big winner and a nice burst of validation, but investing in robust factors will win in the end. Unless you are actually Peter Lynch, of course.

The “Market Feel” Delusion

The “invest in what you know” problem has a close cousin in trading: the obsession with “market feel.” That sixth sense. The instinct to know when to step in and when to stand aside.

The traders who genuinely have it make it sound mystical — they “just knew.” And here’s the dangerous part: they actually did.

But only because those instincts were built on years — often decades — of structured observation, statistical testing, and painful experience. By the time they were “feeling” it, they had already earned the right to trust those feelings.

Most traders skip the earning part. They try to operate on instinct before they’ve put in the work, which is like playing jazz without learning scales. What they call intuition is just guessing.

Markets are full of deceptive noise, and your gut will happily serve you random patterns dressed up as insight. Without a solid statistical or observational base, “feel” is just an expensive way to confirm your pre-existing bias.

The reality:

• Genuine market feel is pattern recognition from implicit learning — your brain compressing thousands of hours of data into something you experience as a “sense.”
• Fake market feel is emotional impulse — fear and greed wearing the mask of wisdom.

If you want the first, you have to earn it: log trades, study patterns, track outcomes, and refine your understanding over years. There’s no shortcut. Until then, trust the numbers, not the twinge in your gut.

The market rewards discipline, not clairvoyance. “Feel” comes later. For most people, probably never.

Disclaimer

This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting, or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact HTAA or consult with the professional advisor of their choosing.

Except where otherwise indicated, the information contained in this article is based on matters as they exist as of the date of preparation of such material and not as of the date of distribution of any future date. Recipients should not rely on this material in making any future investment decision.