Peter Lynch has been one of the most successful investors in America. He was the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990. During this period, he delivered stunning annualized returns of around 29%. In these 13 years, Peter Lynch was able to raise the assets of the firm from around $18 million to $14 billion. Before moving on to what you can learn from Peter Lynch, let’s look at Peter Lynch’s life and success story’s key highlights.
In 1954, Peter Lynch’s father died when Peter Lynch was still young. When Peter Lynch was a teenager, he worked as a caddie in a golf club as he needed to support his family. During his time as a caddie, he became fascinated by people who came to the golf club talking about stocks. When he was in Boston’s college, he used his savings to buy 100 shares of Flying Tiger Airlines at $8 per share. The stock price rose to $ 80 per share. These profits were used to pay for his education.
In 1966, he was hired as an intern with Fidelity Investments. He then joined the Army to serve the country. In 1969, he was hired permanently by Fidelity Investments. At that time, he was charged with chemicals, metals, mining, and textile sectors. He then became Fidelity’s Director of Research. In 1977, he went on to become the head of Fidelity Magellan Fund. When he became the head, it was a small Fund. After he became the Head, the assets of the Fund grew at a stupendous pace. He was able to generate great alpha over S & P 500 Index.
According to Peter Lynch, ‘Stocks aren’t lottery tickets. Behind every stock is a company. If the company does well, over time the stocks do well, and vice versa.’ Hence, the learning for investors is to learn about the business of the company and the underlying sector.
One of his most famous investing principles is to Invest in what you know. This closely resonates with the concept of the circle of competence. Hence, one of the foremost things to learn from Peter Lynch is to invest in companies with which you are familiar.
Say if a person has worked in a mutual fund, he would have good knowledge of how the mutual fund industry works. Thus, he would be in a good position to analyze stocks of Asset Management Companies. He can then choose to invest in stocks of some AMC’s if they are investment-worthy. However, this does not mean that just because you buy a company’s products, you should go ahead and buy the stock. In his words, ‘I’ve never said, If you go to a mall, see a Starbucks and say it’s good coffee, you should … buy the stock.’
Peter Lynch has emphasized the importance of carrying out research before buying a stock. According to him, ‘People buy a stock and they know nothing about it …That’s gambling and it’s not good.’ According to Peter Lynch, the most important organ in the stock market is the stomach, not the brain. When Peter Lynch was managing Fidelity Magellan Fund, the market went down 9 times 10% or more. The Fund that he was managing went down more. Yet, he was not worried. The stock that you hold will definitely fall either immediately or sometime later in the holding period. So, if you see the position you hold falling, you should not sell your position in panic.
During his tenure as Fund Manager, Peter Lynch was able to pick some multibaggers like Ford Motors, Taco Bell, General Electric, and Philip Morris International. Investors need to learn that just like Peter Lynch, they will be able to find such good opportunities during their career if they research well and understand what they are doing.
Peter Lynch has shared his wisdom in his two books on investing
1)One up on Wall Street
2)Learn to Earn
3)Beating the Street
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