Personal Finance

Legendary investor Peter Lynch says "there’s no shame in losing money on a stock" - but never make this mistake

Joey Frenette

Published: March 12, 2025 7:49 am

New investors could learn a thing or two from the brilliant investor Peter Lynch. Though it’s been decades since the man had a more than decade-long market-clobbering winstreak, he stands out as one of very few (apart from the great Warren Buffett) that’s found a way to better markets, not just year to year, but over a long-term timespan.

Indeed, Lynch’s achievement of beating the market for around a dozen years is incredibly hard to do. And while beginning investors shouldn’t set such a high bar for themselves, I do think that Lynch’s words of wisdom can help investors do well while sidestepping the potential pitfalls that ruin many new, young investors who may be more inclined to trade than actually invest with the long-term in mind.

At the end of the day, the intensely volatile day-to-day action may cause some new investors to feel excruciating pain. Some new investors may find their portfolios down by more than 10% (more or less where the amount that the S&P 500 is down today).

It’s time to heed the timeless lessons of the greats as market volatility returns.

While a sudden drop-off in value of a portfolio may nudge some to take immediate action, I do think that any such actions in response to developments or news events are already well too late.

Indeed, if you’re selling stocks today because of tariffs, you may be late enough to run the risk of missing out on the recovery rally. If you were invested through the 2020 stock market meltdown, you’ll know just how fast markets can bounce and the dangers of selling after a sizeable market move lower.

Oftentimes, investors should do the opposite of what their emotions are telling them. At a time like this, when the severity of tariffs is a giant question mark in the market, it’s easy to catastrophize and expect the worst — think a recession or even stagflation, a phenomenon many investors have never encountered firsthand.

For those investors feeling a great deal of shame, regret of recent share purchases, dread of how deep tariffs could cut, and confusion as to what their next move should be (buy the dip or sell before things worsen?), Peter Lynch — one of the world’s greatest long-term investors, perhaps second to only Warren Buffett — has a bit of advice for you. 

Everybody loses money in stocks from time to time.

“There’s no shame in losing money on a stock. Everybody does it. What is shameful is to hold onto a stock, or worse, to buy more of it when the fundamentals are deteriorating.”

That’s a powerful quote, one that I believe to be underrated versus the man’s other invaluable words of wisdom. Undoubtedly, Lynch is only human. Despite his enviable track record during his time running the Fidelity Magellan fund, not every single pick of his has been a home run. The good news is you don’t need every swing to be a grand slam. The key is recognizing when you’ve made a mistake and correcting it immediately.

While blindly buying the dip can make sense if nothing (other than the share price) has changed about the fundamentals, there are times when buying on weakness can be a mistake.

To avoid what Lynch deems as a “shameful” mistake, investors must understand the inner workings of a business enough to separate noise from actual changes in the underlying fundamentals. Furthermore, one should be able to gauge whether the market’s reaction (whether it be a correction or a melt-up) is an overreaction.

Tesla stock is in free-fall. How are the fundamentals?

In the case of Tesla (NASDAQ:TSLA), shares just got cut by more than half since their peak. Despite the violent drop, shares are pretty much where they were six months ago.

So, in the grander scheme of things, it’s not all too big of a deal if you’re still a believer in Musk and the long-term opportunity to be had in Cybercab (robotaxis) and Optimus (robotaxis). Of course, the political and recession risks I mentioned in prior pieces do exist, but after suffering a 50% haircut, one has to think such risks are baked in.

And with Musk recently shooting to double U.S. vehicle production in two years, I’d argue that Tesla stock is more of a buy than a sell now that the October-December melt-up, which saw shares more than double, has been corrected.

The big question is whether tariffs will stick around long enough to drive the U.S. economy into recession. In such a scenario, perhaps the fundamentals have taken a turn for the worse and the ongoing sell-off could have another leg lower.

In any case, if you lost money in the market on a name like Tesla. Do you think carefully about whether the longer-term narrative and whether it’s been impacted by events that have dragged it down since the start of the year. As Lynch says, losing money isn’t shameful, it’s hanging on for a loser too long.