Peter Lynch is a legendary investor with a net worth of $352 million. Lynch rose to prominence running the Fidelity Magellan Fund from 1977 to 1990. Over a 13 year period, the fund averaged 29.2% per year – making it one of the most successful funds during this time. Magellan’s fund grew from $2o million in assets to over $14 billion by the time he left.
Peter Lynch has published three investing books – One up on Wall Street, Learn to Earn and Beating the Street. One up on Wall Street is his highest rated book which was released in 1989. The book may be old but advice offered within is timeless. Once you start reading the first few pages you will get hooked. It’s easy to understand and is largely devoid of arcane formulas.
In order to understand the investor, we need to understand the man. Lynch was born in January 19th 1944 in Newton, Massachusetts. Peter’s father passed away when he was 10 and as a result his mother took over financial responsibility of the household.
His family remembered the crash of 1929 and the subsequent depression. This created an environment of distrusting the stock market in his family. The only stock purchase he ever heard about was when his grandfather bought Cities Service. He was a conservative investor and he chose the company because he thought it was a water utility. Later his grandfather discovered it was an oil company and sold it immediately.
To help out with the financial situation at home, Peter Lynch took a part-time job as a golf caddie at an exclusive Country Club outside of Boston. Here he caddied for powerful CEOs from major corporations such as Gillette, Polaroid and Fidelity. Peter Lynch described his canning experience as educational. “In a single round of play I might give out 5 golf tips and get back 5 stock tips.”
He continued caddying through high school and into Boston College. Peter Lynch preferred history, psychology, metaphysics and ancient Greek philosophy to science, math and accounting.
Peter Lynch noted “as I look back on it now, it’s obvious that studying history and philosophy was much better preparation for the stock market than studying statistics. Investing in stocks is an art not a science and people who have been trained to rigidly quantify everything have a big disadvantage.”
During a sophomore year in college Peter Lynch bought his first stock Tiger Airlines $7 per share. He purchased Tiger Airlines after reading an article highlighting the promising future of air freight. Tiger Airlines turned out to be a great stock due to the Vietnam War Tiger Airlines made a fortune moving cargo and troops in and out of the Pacific. He sold Tiger Airlines at $32.75 which helped fund his graduate studies at Wharton’s, the famed business school that claims fellow legendary investor Warren Buffett as an alumni.
Peter Lynch applied for a summer position at Fidelity after college, he was accepted as one of three summer positions amid a hundred applications. Peter Lynch’s firsthand experience at a real-world investment management company would prove to be transformative and shaped how he approached the investment business.
“After that interlude at Fidelity I returned to Wharton for my second year of graduate school more skeptical than ever about the value of academic stock market theory. It seemed to me that most of what I learned at Wharton, which was supposed to help you succeed in the investment business, could only help you fail.”
“I studied statistics, advanced calculus and quantitative analysis. Qualitative analysis taught me the things I saw happening at Fidelity couldn’t really be happening.”
“It also was obvious that Wharton professors believed in quantum analysis and random walk weren’t doing nearly as well as my new colleagues at Fidelity. So between theory and practice, I cast my lot with the practitioners.”
“It’s very hard to support the popular academic theory that the market is irrational when you know somebody who just made a 20-fold profit in Kentucky Fried Chicken, and furthermore who explained in advance why the stock was going to rise. My distrust of theories and prognosticators continues to the present day.”
After graduate school Peter Lynch had a short stint in the army in Korea. He married his wife while in the army in 1968. He returned from Korea in 1969 and rejoined Fidelity as a full-time Research Analyst. Peter Lynch was subsequently promoted to Assistant Director of Research in 1974 and in May 1977 he was promoted to Fund Manager of the Fidelity Magellan Fund.
When Peter Lynch took over the fund in 1977 it was quite a different beast than how he would leave it 13 years later. Not only was the fund a lot smaller but the fund was only invested in 40 stocks and Fidelity’s head man Ned Johnson recommended that he reduce this number to 25. Peter Lynch ignored the advice and eventually the fund invested in 1,400 different stocks.
James Kelly is my name and penny stocks are my game! Former day trader turned long-term investor with a decade of experience in the market. Over the years, I’ve joined dozens of trading services and I aim to provide honest reviews to help traders make better decisions!