Peter Lynch Beat the S&P 500 in 11 of His 13 Years Running Magellan. Here's Why He Says "Turning Over the Most Rocks" Is the Key to Winning.

Peter Lynch became one of Wall Street's top investors as the manager of Fidelity's Magellan Fund from 1977 to 1990. The fund delivered an average annual return of 29.2% during that period, beating the S&P 500 (SNPINDEX: ^GSPC) in 11 of those years and becoming the world's top-performing mutual fund. Under Lynch, its assets under management grew from $18 million to $14 billion.

As a proponent of value investing, Lynch often told investors to "invest in what they know" rather than chasing the hottest trends. He also said the person "that turns over the rocks wins the game." Let's see why that winning strategy still works in today's tumultuous market.

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What does "turning over the most rocks" mean?

Lynch believes that finding the next market-beating stocks requires looking through a large basket of companies. If you look at ten companies, you might see one interesting one, but if you study 100 companies, you could find ten promising stocks. By turning over more of those "rocks," investors are likely to stumble on hidden gems that Wall Street hasn't spotted yet.

Lynch says that many of those hidden gems are in boring, unglamorous, and overlooked sectors -- including small-cap stocks, local businesses, and obscure companies -- and don't usually make the financial headlines. He also believes investors should be proactive in turning over more rocks instead of sitting still and hoping their portfolios keep growing on their own.

Does that strategy still work today?

In the age of the internet, instant stock screening tools, and AI-assisted investing services, it's much harder to find a hidden gem than it was during Lynch's historic run at Magellan. The rise of passive investing (via index funds and algorithmic trading) further erodes those advantages, and there are now fewer publicly traded companies than in the 1990s.

That said, Lynch's strategy still works with micro-cap and small-cap companies that haven't attracted much interest from analysts and institutional investors yet. Investors also still often shun "boring" but reliable sectors. For example, Waste Management (NYSE: WM) isn't glamorous, but it's delivered a total return of nearly 1,000% over the past 20 years.

Paying attention to what your family and friends are obsessed with can also still lead you to some promising stocks before those companies appear on Wall Street's radar. One of those companies was Celsius (NASDAQ: CELH), which attracted significant consumer attention with its health-oriented energy drinks before any big investors spotted its micro-cap stock. Therefore, Lynch's philosophy still holds up today -- even if our investment tools have changed.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Celsius Holdings and WM. The Motley Fool has a disclosure policy.