Investor Spotlight: Peter Lynch ~ Dionysius

Hi friends,

To make sure that I am not labeled as being biased (hard, as I identify as an index/ passive investor). I will be talking about one of the most successful active fund managers – Peter Lynch. He is famous for being the legendary fund manager of the Magellan Fund at Fidelity and outperforming the market consistently during his helm.

1. Background

Peter Lynch was born in 1944 and graduated from Boston College in 1965 by working as a Caddy in a golf club. He interned at Fidelity Magellan in 1966, he earned an MBA in 1968, served in the US Army from 1967-1969. He was then employed as an analyst at Fidelity (A large part has to do with the fact that he caddied for Fidelity’s president for 8 years). In 1977, he was made the portfolio manager of the Magellan fund at the age of 33.

Magellan Fund grew from $20 million (1977) to $14 billion (1990) under his leadership. This would mean an average return of 29% annually! Meanwhile, the market returned 15.8% annually during the same period. The fund was the best performing mutual fund in the world.

During this period, he also released “One Up On Wall Street” in 1989 which talks about how the common investor can beat full-time investors. “Beating The Street” was released in 1994, which talks about his investment decisions while he was managing the Magellan Fund. “Learn to Earn” was released in 1995 which serves as a beginner’s guide to the stock market.

Peter Lynch then retired from his position in 1990, at the age of 46. He then focused on philanthropic works and spending time with his family. He is estimated to have a net worth of $300+ million.

2. Investment Approach

Peter Lynch was famous for developing the Price-to-earnings-growth (PEG) ratio, which helps us determine if the stock’s value given its earning potential. He gave 3 basic principles for investing:

Only buy what you understand (Apparently, a lot of the stocks that he bought are found when he is at the grocery stores or chatting with family and friends)

Doing your homework (This is done by analyzing the fundamental values of the company. This may include a percentage of sales (the product you like should be a core product of the company), PEG (you can take a look at my previous post), Strong cash positions and low debt ratios (for all environment)

Invest for the long run (He believes in finding companies that have strong businesses and not selling them even though they have earned 100% returns if he believes that they are still a good company)

3. Broader Impact on the Industry

Because of his legendary returns, Peter Lynch has been a celebrity in the mutual fund industry. People have used him as an example that active investing has a chance to outperform the market and give you extraordinary returns. His investment books are still impacting the common investors today, enabling them to increase their financial literacy and be responsible for their finances. This is especially significant as he inspired this hope that even common investors can outperform the most established fund managers.

He has also advocated for most investors to invest in low-cost index funds, especially without doing our own research. Which I admire, that he is willing, to tell the truth, giving more credibility to passive investing through index funds/ETFs.

4. Personal Impact

After his retirement, he has focused his effort on philanthropy – Lynch Foundation. It was launched in 1988, granted a total of $130 million by 2020. He is the foundation’s portfolio manager, where he looks for an undervalued program to maximize the benefits of the charity donation.

His life is something that I want to emulate. Especially his philanthropic efforts after he retired. But I do not do active investments and even though his methods have allowed him to continuously outperform the market, it is not something that I can afford to do or something that I can do as well.

5. Fun Fact

Under him, the Magellan Fund has owned thousands of stocks at one point in time.
He donated more than $10 million to Boston college in 1999
He identified Dunkin Donuts and Taco bell before they took off

He is indeed a phenomenal investor, with a return that I hope to achieve through my own portfolio allocation. I hope that you have learned more about him and that this post will inspire you to read his books.

With that,

I end today's topic.

Stay vested, Stay frugal my friends,

Dionysius