Peter Lynch’s career at Fidelity Magellan began in 1966 as an intern and as an analyst following his graduation from Boston College in 1965. Following a brief stint in the army from 1967-1969 he returned to full time employment with Fidelity Magellan as the head of textiles, mining, metals and chemicals investment sector. From here his career progression quickly escalated when in 1974 he became the director of research followed by portfolio manager in 1977. During his time at the head as manager of the Fidelity Magellan Fund between 1977 and 1990, his hard work and ambition paid off with the fund averaging 29.2% per annum before retiring.
Lynch believed that while professionals had their own advantages, so did individual investors who could operate with a greater degree of freedom to explore their ideas and investments providing them with a small edge. Discussed in his three books, “One Up On Wall Street” (1989), “Beating the Street” (1994) and “Learn to Earn” (1995) he discusses some of his well know investment philosophies the first being “Invest what you know”. He believed local knowledge was key, undertake detailed analysis to have an understanding of the business, it’s products, people and competition allowed you to find good investments.
When investing the focus was primarily on three factors, profitability, price and business model. Attractive companies had a P/E ratio below the industry average, high growth and profitability prospects as well as a growing dividend over the past twenty years and low company debt.
A famous ratio created by Lynch was “PEG” (Price/Earnings to growth) which he used to determine if a stock is cheaper relatively to growth. Aside from the above he also provided the following advice:
- It’s futile to predict the economy and interest rates
- You have plenty of time to identify and recognise exceptional companies
- Avoid long shots
- Good management is very important – buy good businesses
- Be flexible and humble, learn from mistakes
- Be able to explain why you’re buying before you purchase
- There’s always something to worry about
I’ll leave you with two quotes that speak the most to myself and hopefully you as well.
“The person that turns over the most rocks wins the game. And that’s always been my philosophy.”
“Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it.”
