Legendary US market investor Peter Lynch, renowned for his successful investment strategies, shares the reason why he doesn’t invest in AI stocks, while emphasising the importance of understanding one’s investments.

The AI boom has led the market for the past three years, but Lynch, who achieved an average 29.2% annual return during his 13 years leading Magellan until 1990, has been content to observe from afar.

Lynch opens up on not investing in AI stocks

“I have zero AI stocks,” Lynch said on “The Compound and Friends” podcast with investor Josh Brown. “I literally couldn’t pronounce Nvidia until about eight months ago,” he said.

Since ChatGPT’s launch in late 2022, megacap tech stocks have surged, prompting many on Wall Street to wonder if the AI rally mirrors the dot-com bubble of the late 1990s. When asked whether investors have overextended themselves in the AI trade, Lynch responded that he had “no idea.”

Lynch mentioned he lacks sufficient understanding of technology to form a well-informed opinion on the market’s optimistic outlook on AI.

“I’m the lowest tech guy ever,” he said. “I can’t do anything with computers. I just have yellow pads,” Lynch added.

He chose not to talk about his current portfolio or his preferred stocks right now, citing Fidelity rules.

‘Know what you own’

Lynch has consistently emphasised that investors should thoroughly understand the companies they invest in, which is a fundamental principle in his book “One Up on Wall Street.”

“I have this expression: ’Know what you own, if you don’t understand what you own, you’re toast,” Lynch said.

He mentioned that people often spend hours researching flights to find the best price. However, when it comes to investing, he said “they’ll put $10,000 in some crazy stock they heard on the bus.”

Lynch called the phrase “play the market” ‘awful” and “dangerous.” Instead, he advised that people should invest in good companies and understand their operations.

‘Don’t have to be in the first inning’

Although the common advice is to buy stocks before they rise significantly, Lynch warned against dismissing all investment opportunities simply because a share has already surged.

“Sometimes, you don’t have to be in the first inning,” Lynch said.

Lynch cited McDonald’s as an example, which had experienced long-term, rapid growth domestically. The burger chain continued to grow strongly as it expanded into international markets.

“People said ‘McDonald’s is done,” Lynch said. “They just simply didn’t think it through,” he added.

Advantages of investment in current times

According to Lynch, today’s investors have “cushions” that did not exist prior to the Great Depression and the New Deal.

Lynch identified unemployment insurance, Social Security benefits, and the establishment of the Securities and Exchange Commission as initiatives that have aided everyday people over time. He also emphasised the Federal Reserve’s active role in recent decades.

Lynch mentioned that investors today benefit from numerous improvements, including increased market and economic buffers compared to the past.

Will AI impact jobs?

Lynch reassured employees concerned about potential job losses due to AI. During the early 1980s, approximately one million individuals were employed by AT&T, at a period when the total labour force was roughly 100 million. Although the telecommunications sector has expanded since then, Lynch stated that the leading companies currently employ approximately 400,000 workers.

Lynch’s remarks come amid warnings from executives at companies such as Walmart and Accenture, who have emphasised that artificial intelligence will fundamentally transform their workforces.