Peter Lynch: Why his track record at Magellan was #1

Eric serves as a Portfolio Manager and a member of the Investment Committee at Accuvest Global Advisors, sub-advisor to a consumer-oriented strategy at Rational Funds. As a member of the Investment Committee, his responsibilities include research, investment analysis, technical analysis, macroeconomic commentary, and portfolio strategy & implementation. Eric is a frequent writer about the power of the consumer spending theme and global consumption trends. He is a brand consultant and leads the Alpha Brands Consumer Spending Index committee. He holds the Series 7 and 66 licenses.

There are lots of great investors. Everyone has short term wins but very few investors had the track record of Peter Lynch when he ran Fidelity Magellan Fund. Rather than re-create the wheel, perhaps we should do more of what the smartest investors did and try to hone in on the strategies that seemed to work on a more consistent basis. With that in mind, I wanted to summarize some of the key points from the Peter Lynch interview below.

Peter Lynch took over the Fidelity Magellan Fund in May 1977. The fund had $20million in assets when he took it over and $14 billion when he left. Historically, small asset funds have tended to perform well given they are more nimble and flexible than many of the bloated funds inside the typical investors portfolio and 401k plan. Here’s a look at how Peter Lynch did running Magellan.

More About The Magellan Fund:

The top performing equity fund (there were thousands at that time) for the period when Peter Lynch ran it. Here’s some of his talking points from Peter in this amazing interview & a few others I’ve found over the years.

What helped him beat the market:

  • The tragedy in America is the small investor has been convinced by the media that they don’t have a chance in investing – that just isn’t true.
  • Rent a 12 year old for the weekend and follow them around to see where they shop. You’ll fund great stock tips.
  • I think the public can do extremely well in the stock market on their own.
  • Most people couldn’t tell you why they own something in a minute or less, usually it’s “because the suckers going up.”
  • If you can’t explain to a 10 year old in 2 minutes or less why you own a stock, you shouldn’t own it.
  • If you spend 14 minutes/year trying to predict the direction of the economy or interest rates, you’ve wasted 12 minutes.
  • I made money in Dunkin Doughnuts, I can understand doughnuts. When there’s a recession, I can still go to the store, people will be there, I didn’t have to worry about the lowered price of Korean imports. You laugh but I made 10-15x my money investing in Dunkin Doughnuts.
  • People do great research on important things for their families (vacations, etc) yet they get a tip from a complete stranger and sink half their life savings & wonder why they lost money in the stock market.
  • Stocks are not lottery tickets, there’s a company behind every stock.
  • Wait for signs that an industry or company is slowing down, when you see it, it’s time to move on.
  • There’s always something to worry about in the stock market. Markets decline, that’s what they do. But if you know what you own and why you own it, you’ll see these declines as opportunities.
  • I love volatility, Taco Bell was the #1 position in Magellan by 1978, $14 to $1 – no debt, never had a restaurant close – I started buying at $7 and then it was bought out by Pepsi at $42.
  • The great short sellers, the one’s that make a lot of money at it, don’t short Walmart, they don’t short Home Depot, they don’t short great companies, like JNJ…
  • The average consumer has better information than most wall street analysts, look inside your own industry, there’s always great opportunities when you have knowledge that most don’t have.
  • When industries & stocks go from terrible to mediocre, stocks go north. When stocks go from mediocre to good, stocks go up, when they go from good to terrific, stocks go up. It’s just that simple.
  • It’s very hard for a company to go bankrupt with no debt, it’s not easy to do.
  • Huge issue: people sell stocks because they go down – they panic because they don’t know what they own.
  • You only need a few good stocks in your lifetime. I mean how many times do you need a stock to go up ten-fold to make a lot of money? Not a lot.
  • Hold no more stocks than you can remain informed on.
  • The list of equities (an investor should have) include patience, self-reliance, common sense, a tolerance for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit mistakes, and the ability to ignore general panic.