Course 507:
Great Investors: Peter Lynch
In this course
1 Introduction
2 Stick to What You Know
3 Do Your Research and Set Reasonable Expectations
4 Know the Fundamentals
5 Ignoring Mr. Market
6 The Bottom Line

Peter Lynch is one of the greatest money managers and most famous investors of all time. He drew acclaim for his success as the portfolio manager of Fidelity Magellan FMAGX, the mutual fund he ran from 1977 to 1990. When Lynch became Magellan's manager in 1977, the fund had $20 million in assets. Lynch's strong track record at Magellan drew investors at a rapid rate, and by 1983 the fund's assets topped $1 billion. During the 13 years Lynch ran the fund, Magellan outperformed the annual return of the S&P 500 stock index 11 years. Lynch achieved this performance even after Magellan was the nation's largest mutual fund with $13 billion in assets. The sheer size of Magellan was part of Lynch's aura. No one else had managed such a big fund with so much success.

Despite his uncanny talent as a portfolio manager, Lynch's mantra is that average investors have an edge over Wall Street experts. He says that professional investors usually don't find a stock genuinely attractive until a number of large institutions have recognized its suitability and an equal number of respected Wall Street analysts have put it on the recommended list. This "Street lag" gives average investors many advantages, because they can find promising investments largely ahead of the professional investors. Lynch stated, "If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them." Therefore, individual investors can outperform the experts and the market in general by looking around for investment ideas in their everyday lives.

Lynch's seminal book, One Up on Wall Street, articulates his investment philosophy. The Lynch stock-picking approach has several key principles: First, you should invest only in what you understand. Second, you should do your homework and research an investment thoroughly. Third, you should focus more on a company's fundamentals and not the market as a whole. Last, you should invest only for the long run and discard short-term market gyrations. If you adhere to the basic principles of this investment philosophy, Lynch believes that you will be well on your way to "beating the street."

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