Type of Investing: Public Equity
Who is Peter Lynch?
Peter Lynch is one of the most successful and well-known investors of all time. Lynch is the former manager of the Magellan Fund at the major investment brokerage Fidelity, where he ran the fund for 13 years (1977-1990) leading it to an annualized return of 29.2% over the 13 years. Due to his massive success, he was able to retire at 46 in 1990.
Post-retirement, he worked with Fidelity as a private consultant for a few years. His investment style has been described as adaptive to the prevailing economic environment at the time, but Lynch always stressed that you should be able to understand what you own.
Lynch developed an interest in the stock market through conversations he overheard while working as a caddy at an upscale golf club when he was 11. This coincided with the market doing incredibly well, piquing his interest and leading him to attend Boston College. He graduated in 1965 with a degree in finance, and began working in 1966 as a summer student at Fidelity.
Investment History and Highlights
Invested in Flying Tiger air freight, helping him pay for graduate school. Flying Tiger eventually merged with FedEx, but pre-merger helped deliver freight for the US military in the Korean War. It became the world’s largest air cargo carrier in October of 1980, servicing 6 continents and 58 countries.
Fidelity Magellan Fund - Started off with $20M in assets before he began managing the portfolio in 1977, and after his retirement the fund was over $13B. Outperformed the S&P 500 11 out of the 13 years he managed the portfolio, and an investor who put $10,000 into the fund at the start would have ended with $280,000 upon Peter Lynch’s exit.
Investment Beliefs and Philosophies: Invest In What You Know
Lynch was credited with inventing the Price-to-Earnings-Growth Ratio (PEG), which helps investors determine whether a stock is inexpensive given its growth potential, along with other stock valuation methods popular with value investors.
A big proponent of invest in what you know. He equates investing in a company to buying a car or refrigerator - people will ask their neighbors, friends, distant relatives, and then ask 4 different employees their opinion on the water dispenser in the fridge before buying it, but then throw half of their net worth into a stock because some guy on the bus that looked smart said to. If you are going to invest, research the company, compare it to the industry, and then look through its fundamental numbers. Only then is it a smart investment.
Be aware of what is going on around you. If you notice your local franchise of Wal-Mart seems extra busy, start to do some research and see if this is a nationwide occurrence. If your friend group is really into an app or streaming service, go look at their financials. Odds are, you aren’t the only group with the same interests, and this may be a harbinger of future revenue growth.
Quotes
“The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed.”
“There's no such thing as a worry-free investment. The trick is to separate the valid worries from the idle worries, and then check the worries against the facts.”
“Know what you own, and know why you own it”
“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.”
Books
- One Up on Wall Street (1989)
- Beating the Street (1993)
- Learn to Earn (1995)
