Peter Lynch is a legendary investor often mentioned in the same context as Warren Buffett, Benjamin Graham, Charlie Munger, and other billionaires who made their fortunes through the stock market. In this article, we'll take a look at why Lynch has become such a famous investor, some of the key aspects of his investment style, and how you can learn more about Lynch's stock-picking philosophy.
Who is he?
Who is Peter Lynch?
Peter Lynch is one of the most highly respected investors of all time, and for good reason. He is widely considered the most successful mutual fund manager ever.
From 1977-90, during his career at Fidelity Investments, Lynch managed the firm's Magellan Fund (NASDAQMUTFUND:FMAGX), where he averaged a 29.2% annualized return, a remarkable level of performance to sustain for 13 years. To put this level of performance into perspective, a $10,000 investment at the time Lynch started managing the fund would have grown to almost $280,000 by the time he left.
Lynch is also one of the most widely read authors of investing books, with several best-selling books on value investing, including the massively successful 1989 book One Up on Wall Street.
Personal stats
Peter Lynch's personal stats
- Age: Born Jan. 19, 1944
- Source of wealth: Investment management
- Marital status: Widower
- Residence: Boston, Mass.
- Children: Three
- Education: Boston College (BA), The Wharton School of the University of Pennsylvania (MBA)
Early life and education
Early life and education
Peter Lynch was born in 1944 in Massachusetts and has essentially spent his entire life living in the area. He attended Boston College for his undergraduate studies and went to business school at the Wharton School of the University of Pennsylvania.
Accomplishments
Peter Lynch's accomplishments
- Considered to be the most successful mutual fund manager of all time.
- Generated a 29.2% annual return over 13 years at the Fidelity Magellan Fund.
- Grew the Magellan Fund from $18 million to $14 billion in assets.
- One of the most popular investing book authors in the world.
Publications
Published books
Lynch is one of the best-selling authors of investment books in the world. His books include:
- One Up on Wall Street
- Beating the Street
- Learn to Earn
He co-wrote the bestseller One Up on Wall Street with John Rothchild in 1989 while running the Fidelity Magellan Fund. The book is a primer on Lynch's investment philosophy and the advantages he feels individual investors have over Wall Street experts.
With 1994's Beating the Street, Lynch takes it a step further, showing investors real-world examples of how he uses his philosophy to pick stocks. Learn to Earn, published the following year, is geared toward newer investors, especially those who are relatively young, and looks at techniques such as reading financial reports.
Investment strategy
Peter Lynch's investment approach
Peter Lynch has written three major books on investing, so his strategy and philosophy aren't exactly a secret. His most popular investment philosophy is "invest in what you know," which is a major theme of his bestselling book One Up on Wall Street. He also created the price-to-earnings-growth (PEG) ratio for stock evaluation.
Lynch believes smaller investors have an advantage over Wall Street professionals because they can find real-world investment opportunities before appearing on Wall Street's radar. Lynch specifically mentioned Apple (AAPL -0.57%) as an opportunity he noticed when his daughter bought an iPod at a higher price than most other portable music players on the market. However, he never acted and bought the stock.
Lynch is not a market-timer. He believes in finding great opportunities and holding on to them. In other words, Lynch didn't buy or sell stocks in anticipation of the market going up or down.
He also used a combination of growth and value investing, using the latter to find stocks trading at reasonable value but using growth principles to find opportunities for rapid business growth. His strategy is often referred to as growth at a reasonable price (GARP).
Growth at a Reasonable Price (GARP)
When it comes to growth investing, Lynch advises investors to determine what "inning of the ball game" a company is in. One example he gives is a big position he opened in McDonald's (MCD 0.58%), which, at the time, was unpopular with many investors, who saw limited room for growth.
However, McDonald's surprised many people as it spent the next two decades building its international footprint. During the 20-year period starting in the mid-1980s, when Lynch invested, McDonald's generated a 3,000% total return for investors.
The lesson: Don't assume a big, successful business has no room to grow. A similar situation unfolded with Chipotle Mexican Grill (CMG -0.45%) more recently.
Although he retired from the Magellan Fund in 1990, Lynch occasionally gives interviews and makes television appearances. In recent years, he has said that in today's market, investors aren't "careful" enough; too many are buying a stock simply because they heard about it from a friend or at a party.
Lynch cautions against trading, which has become far easier in today's world of commission-free trading, but also says there is much more information available today for investors who want to learn how to invest properly and do their homework.
Related investing topics
Investments
Peter Lynch's investments
One of the more remarkable aspects of Lynch's investment strategy is that, unlike most highly successful investors, Lynch achieved his returns without a concentrated stock portfolio. For example, Berkshire Hathaway's (BRK.A 0.32%)(BRK.B 0.14%) stock portfolio is worth about $315 billion and is mainly run by Warren Buffett, but it contains fewer than 50 stocks. Not only that, the bulk of the portfolio's assets are concentrated in its five largest positions.
On the other hand, when Lynch resigned as the manager of the Magellan Fund in 1990, it had more than 1,000 individual stocks in its portfolio. The portfolio was also skewed toward small companies where Lynch saw lots of growth potential. Still, Ford (F -0.86%), General Electric, and Lowe's (LOW -0.08%) were some of Lynch's most profitable stocks.
FAQ
FAQ about Peter Lynch
What is Peter Lynch known for?
Peter Lynch is widely known for being one of the best stock investors of the modern era. He is often recognized as the most successful mutual fund manager ever, leading Fidelity's Magellan Fund to 29.2% annualized returns from 1977 to 1990.
What does Peter Lynch do today?
Peter Lynch retired from mutual fund management in 1990 at 46, but he occasionally gives media interviews about the market today.
Although he largely stays out of the spotlight, Lynch is vice chairman of Fidelity Management & Research (the investment adviser part of Fidelity) and spends a lot of time on charitable activities, having established the Lynch Foundation with his late wife.
What is Peter Lynch's investing style?
Peter Lynch uses a combination of value investing principles, growth investment principles, and investment techniques to find excellent opportunities. He doesn't limit his strategy to any particular sector and doesn't have an upper limit on the number of stocks he's willing to hold at a time.
However, he firmly believes in thoroughly analyzing investment opportunities and using everyday observations to find them before they are on Wall Street's radar.
What companies did Peter Lynch invest in?
When he retired from the Magellan Fund in 1990, the portfolio contained more than 1,000 stocks. Notable investments Lynch made include McDonald's, Ford, General Electric, and Lowe's, all of which were quite profitable for Lynch and his investors.
How many stocks did Peter Lynch own?
If we include stocks he bought more than once, Lynch purchased more than 10,000 stocks in the Magellan Fund's portfolio. At any given time, it was common for there to be more than 1,000 stocks in the portfolio, and at one point, the Magellan Fund held as many as 1,400 stocks in it.
