Peter Lynch

Market Wizards Index: +30%
Compound annual over 11 years

Fund or affiliation

• Magellan Fund, Fidelity Management

Methodology

• Management of the largest mutual fund in history with enormous personal dedication and a growth bias.

Asset Categories Employed

• Four categories: 2 to 3 bagger growth stocks, undervalue plays for 30% gains, special situations and depressed cyclicals, defensive stocks in preference to holding cash.
• Avoids options and futures.

Research Techniques Employed

• Stresses on first hand contact and information.
• He tries harder: 100,000 mileage points a year, 40-50 co. visits a month, several dozens broker calls on an average day.
• He has a network of buy-side peers: the Downtown Discussion Group meets for dinner 6 times a year, the group includes Phil Hempleman and Joe McNay.
• Ask the man you are interviewing about his rivals across the street. Like John Templeton: "If you weren’t working for your present company, who would you most like to join instead?"
• Fidelity has a team following insider trading.
• Growth stock is the largest single category in his portfolio. He look particularly at unit growth. High growth justifies high multiples.
• Every year, he spends 15 minutes on economic analysis; also 15 minutes on market analysis.

Trading/ Valuation Techniques Employed

• When he senses something afoot he buys like Jim Rogers, the entire stock group, in toto: as they start to move, he may winnow the list down to a favorite few.

Philosophy and beliefs

• Objective: To catch the turn in a company’s fortunes.
• Very often the most convincing idea will be encapsulated in a paragraph.
• The best results flow from a progression of surprises. Like Chrysler, and Stop-n-shop which advanced bit-by-bit by twenty times.
• He likes to look at businesses that anybody could run, not superman. Like 3M, Motorola, TI, Dow.

History and other facts

• Lynch went to Wharton.

Examples

Performance Record

• 30% over 11 years: "$10,000 put in Magellan when Lynch took command in 1977 was worth over $200,000 by 1988", J.Train, NMM pp. 193

Trading Techniques

• Lynch’s trading technique is more like a market maker, attuned to the rhythm of his stable of a couple of thousand stocks, back and forth, year after year.
• A huge winner will offset many small losses. On the other hand, he also uses the technique of relative value; six 30% moves equal a 4 bagger.
• He uses 3 traders: one buys, one sells, and the third one understudies both.