After 13 years leading Fidelity's Magellan Fund, investor Peter Lynch retired at the top of his game in 1990. His net worth, estimated at $350 million today, afforded him the freedom to pursue philanthropy and write several books, including 1993's Beating the Street and 1996's Learn to Earn. Over the years, Lynch's steady supply of quotes, writings, and occasional interviews has provided investors with timeless education on beating the markets then and now.
Peter Lynch's record at Fidelity's Magellan Fund speaks for itself
Before we dive into his quotes, a brief background on Lynch and the Magellan Fund is in order. He has been retired for 26 years, after all.
When Lynch took the reins at Fidelity's Magellan Fund in 1977, the mutual fund reported total assets under management of just $18 million. When he retired in 1990, assets in the fund had increased 1,286 times to over $14 billion.
The reason for such incredible growth is simple: Lynch's investing prowess was second to none. The fund averaged a 29.7% annual return over his 13 years, beating the S&P 500 in 11 out of 13 years and posting the best record of any mutual fund in the world over that time.
With a track record like that, it behooves us to pay attention whenever Lynch decides to share his knowledge. Here are eight quotes to start your education on how, exactly, he was able to invest so successfully.
Lynch shares his secrets in quotes and his books Learn to Earn and Beating the Street
Invest in what you know.
This is perhaps Lynch's most famous quote, and it is as straightforward as it is powerful. At the Magellan Fund, he would only invest in companies that he could understand. However, Lynch also stated:
I've never said, 'If you go to a mall, see a Starbucks and say it's good coffee, you should call Fidelity brokerage and buy the stock."
Investing in what you know does have a little nuance. Knowing a stock means more than having heard of a company or being one of its customers. It means knowing the stock as a business. How does the company make money? Who is management and are they competent? What risks exist? Who are the competitors? And so on.
Investing without research is like playing stud poker and never looking at the cards.
If you don't understand your investment on a fundamental, business level, then you're not actually investing at all. You're gambling. Worse yet, you're gambling blind without any logical justification for why a stock should go up.
If you can't understand the balance sheet, you probably shouldn't own it.
Are you noticing a pattern yet? In this quote, Lynch again hammers home the point that investing in what you know means more than liking a company's product. A cornerstone of Lynch's success was a commitment to rigorous fundamental analysis.
When you're short, you can only make 90%; when you're long, you can make tenfold.
During his time leading the Magellan Fund, Fidelity limited the fund to long-only positions. That was not a problem for Lynch, however, as he preferred the long bets for their ability to continue generating returns well above 100%.
If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes.
Lynch believes in the power of investing in the best companies. These companies will outperform regardless of macroeconomic reports or analyst reports. In this way, an investor can largely ignore unpredictable economic cycles and find investing success over the long term, through both the ups and the downs.
Go for a business that any idiot can run -- because sooner or later, any idiot is probably going to run it.
For long-term investors, a company's management can make or break the stock's performance. That is, unless the business is one that, as Lynch says, "any idiot can run." For these businesses, strong competitive advantages protect the company from management mistakes, adding a layer of safety for investors that the stock will do well no matter who is sitting in the corner office.
[Investing] is a fun exercise. Beats the hell out of golf.
Peter Lynch clearly loves investing. Twenty-six years after his retirement, he still spends most of his time researching stocks and investing his own capital, rather than working on his handicap at the golf course. Like golf, however, investing is a difficult game that requires diligent effort to improve over time. Learning to enjoy the practice of investing will improve your results and keep you coming back for more, just as time at the driving range can straighten out that pesky slice off the tee.