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Peter Lynch is a former value-oriented mutual fund manager who rose to prominence due to his robust and outsized investing returns over a long period. Over a 13-year time frame, Lynch achieved returns of 29% on average annually – regularly doubling or tripling the general market’s returns in any given year and outperforming 99% of his mutual fund peers. To provide you with an idea of Peter Lynch’s success and reputation, his assets under management (AUM) at the Fidelity Magellan Fund (FMAGX - Free Report) grew from $18 million in the late 1970s to more than $14 billion by 1990 (Lynch’s tenure).
What also makes Lynch special is his openness and willingness to share his philosophy. Lynch has written or contributed to several investing books, including his best-seller, “One up on Wall Street.” Today we will cover 5 key lessons we can learn from the legendary investor, including:
1. “Invest in what you know”: Peter Lynch achieved meteoric success by sticking to the simple principle of understanding what he owned. Several examples throughout Lynch’s career prove this. Lynch famously read about Dunkin’ Donuts in a newspaper. However, he only purchased shares in the stock after visiting a Dunkin’ Donuts shop and taking a liking to the coffee. Another time, Lynch’s wife tried a new pantyhose product from Hanes Brands Inc (HBI - Free Report) called L’eggs. After listening to his wife rave about the product for days, Lynch did his due diligence on the stock and purchased it for the Fidelity Magellan fund. In the end, Hanes produced 30-fold returns for the fund. Pay attention to the products you use in everyday life – they may just lead you to your next investment. Furthermore, if you invest in what you know and understand, you will have more conviction.
2. “Far more money has been lost by investors trying to time corrections than has been lost in all the corrections combined.”: Lynch’s point here is that trying to time very long-term investments such as mutual funds is a fool’s errand. Noting that if you started investing in 1965 and bought the absolute top in the market, your average annual return was 10.6%. Meanwhile, if you invested at the absolute low during that time, your forward return only equated to 11.7% - so you gained just 1.1% for perfect timing. The fact is that over time, U.S. markets tend to rise.
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Note: Lynch is referring to the overall market and mutual fund strategies. Most successful strategies outside of these realms implement a loss-cutting and risk-management regimen.
3. No mathematical formula that can tell you whether a stock will go up or down: Lynch equates more of his investing success to his philosophy and logic degrees than his mathematics degree. In other words, while mathematics does play a role in investing, mastering your emotions and psychology is just as critical.
4. The Godfather of “Growth at a Reasonable Price” (GARP): Peter Lynch is credited with popularizing the strategy of mixing stocks with reasonable valuations and strong earnings growth. The Fidelity Magellan fund showed investors that combining the two most popular disciplines could lead to outsized returns.
5. Be a slugger, not a base hitter:Peter Lynch achieved his astronomical returns by sticking with up-trending stocks. He caught several “multi-baggers” in stocks like Philip Morris (PM - Free Report) . Lesson: when you’re right, oftentimes the best thing you can do is sit on your hands.
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5 Lessons to Learn from Peter Lynch's Success
Who is Peter Lynch?
Peter Lynch is a former value-oriented mutual fund manager who rose to prominence due to his robust and outsized investing returns over a long period. Over a 13-year time frame, Lynch achieved returns of 29% on average annually – regularly doubling or tripling the general market’s returns in any given year and outperforming 99% of his mutual fund peers. To provide you with an idea of Peter Lynch’s success and reputation, his assets under management (AUM) at the Fidelity Magellan Fund (FMAGX - Free Report) grew from $18 million in the late 1970s to more than $14 billion by 1990 (Lynch’s tenure).
What also makes Lynch special is his openness and willingness to share his philosophy. Lynch has written or contributed to several investing books, including his best-seller, “One up on Wall Street.” Today we will cover 5 key lessons we can learn from the legendary investor, including:
1. “Invest in what you know”: Peter Lynch achieved meteoric success by sticking to the simple principle of understanding what he owned. Several examples throughout Lynch’s career prove this. Lynch famously read about Dunkin’ Donuts in a newspaper. However, he only purchased shares in the stock after visiting a Dunkin’ Donuts shop and taking a liking to the coffee. Another time, Lynch’s wife tried a new pantyhose product from Hanes Brands Inc (HBI - Free Report) called L’eggs. After listening to his wife rave about the product for days, Lynch did his due diligence on the stock and purchased it for the Fidelity Magellan fund. In the end, Hanes produced 30-fold returns for the fund. Pay attention to the products you use in everyday life – they may just lead you to your next investment. Furthermore, if you invest in what you know and understand, you will have more conviction.
2. “Far more money has been lost by investors trying to time corrections than has been lost in all the corrections combined.”: Lynch’s point here is that trying to time very long-term investments such as mutual funds is a fool’s errand. Noting that if you started investing in 1965 and bought the absolute top in the market, your average annual return was 10.6%. Meanwhile, if you invested at the absolute low during that time, your forward return only equated to 11.7% - so you gained just 1.1% for perfect timing. The fact is that over time, U.S. markets tend to rise.
Image Source: Zacks Investment Research
Note: Lynch is referring to the overall market and mutual fund strategies. Most successful strategies outside of these realms implement a loss-cutting and risk-management regimen.
3. No mathematical formula that can tell you whether a stock will go up or down: Lynch equates more of his investing success to his philosophy and logic degrees than his mathematics degree. In other words, while mathematics does play a role in investing, mastering your emotions and psychology is just as critical.
4. The Godfather of “Growth at a Reasonable Price” (GARP): Peter Lynch is credited with popularizing the strategy of mixing stocks with reasonable valuations and strong earnings growth. The Fidelity Magellan fund showed investors that combining the two most popular disciplines could lead to outsized returns.
5. Be a slugger, not a base hitter:Peter Lynch achieved his astronomical returns by sticking with up-trending stocks. He caught several “multi-baggers” in stocks like Philip Morris (PM - Free Report) . Lesson: when you’re right, oftentimes the best thing you can do is sit on your hands.