One of the most successful investors – Peter Lynch
Wed Jan 28, 2009, 12:10 am | Leave Comment
Peter Lynch managed the Fidelity Magellan Fund from 1977 to 1990, during which time the fund’s assets grew from $20 million to $14 billion. More importantly, Lynch reportedly beat the S&P 500 Index benchmark in 11 of those 13 years, achieving an annual average return of 29%.
He is also famous for several books including, “One Up On Wall Street” (1989) and “Beating The Street” (1993), which are widely considered to be mandatory reading for any investor.
Often described as a “chameleon,” Peter Lynch adapted to whatever investment style worked at the time. It is said that his work schedule, the equivalent of what we would call today “24/7,” did not have a beginning and an end. He talked to company executives, investment managers, industry experts and analysts around the clock.
Investment Style
In an article by Kaushal Majmudar, a CFA at The Ridgewood Group, the author said “Lynch consistently applied a set of eight fundamental principles to his stock selection process.”
- Know what you own.
- It’s futile to predict the economy and interest rates.
- You have plenty of time to identify and recognize exceptional companies.
- Avoid long shots.
- Good management is very important – buy good businesses.
- Be flexible and humble, and learn from mistakes.
- Before you make a purchase, you should be able to explain why you’re buying.
- There’s always something to worry about.
Moral of the story
Peter Lynch moved differently at different times. But he had a keen eye for good businesses and good opportunities. It is very difficult, almost impossible, to follow him.
In picking stocks (good companies),
- Peter Lynch stuck to what he knew and/or could easily understand. That was a core position for him.
- He also dedicated himself to a level of due diligence and stock research that left few stones unturned.
- He shut out market noise – Price and volume fluctuations that are random and meaningless – and concentrated on a company’s fundamentals, using a bottom-up approach.
- He only invested for the long run and paid little attention to short-term market fluctuations.
However, having said that, becoming a successful investor takes education, patience and maybe even a little luck.
What do you think?
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