In his 13 years as an asset manager, Peter Lynch turned the $18 million Fidelity’s Magellan fund into a $14 billion fund with exceptional returns.
Lynch averaged a 29.2% annual return through the period – more than double the S&P500’s 13.2% rally. This made the Magellan fund one of the best-performing funds.
Lynch’s childhood played a big part in his success. His father passed away when he was young, and he took up work as a golf caddy to support his family.
It was on the golf course that Lynch met the president of Fidelity, D. George Sullivan, who played a role in giving him a shot as an intern at Fidelity.
Fidelity is a US-based wealth management company headquartered in Boston, Massachusetts.
Ten years after arriving as an intern, Lynch was given an opportunity to manage the $18 million, and then-unknown, Magellan fund.
There, he was able to implement his unique investment strategy that yielded exceptional returns.
For Lynch, the most important rule when investing is knowing and understanding the company you own.
In a 1997 speech, Lynch said, “If you can’t explain to an 11-year-old in two minutes why you own a stock, then you shouldn’t own it.”
He also claimed that good companies could be found anywhere, and so long as you understand the industry, there is no reason to avoid stocks commonly seen as ‘boring’.
Investopedia said Lynch had been credited with popularising the price-to-earnings ratio, which helps investors determine whether a stock is fairly priced.
By using simple analyses, Lynch worked out if a stock was good to buy or not. He applied simple tests to many businesses with the idea of finding underpriced companies.
When Lynch took over, there were 60 shares in the Magellan fund. He increased their holdings to over 1,000 individual stocks.
Lynch said in his book, Beating the Street, that he probably bought 15,000 individual shares in the Magellan fund – many more than once. “No wonder I’d gotten a reputation for never having met a share I didn’t like,” he said.
Lynch retired in 1990 at the age of 46. Ferdinand Magellan, the Portuguese explorer whom the Magellan fund was named after, also retired young, he said.
Lynch is a passionate believer that average retail investors are able to beat the market.
He has written three books; “One Up on Wall Street”, “Beating the Street”, and “Learn to Earn”, to empower retail investors to make smart investing decisions.
Lynch has also made significant donations to charities and organisations in fields such as education, health, culture, and history.