Some say he was the greatest investor ever...
And, at least in the public-fund business, I doubt there has been anyone as good as him.
Between 1976 and 1991, Peter Lynch was a rock star in the mutual-fund world. For 13 years, he returned 29% a year to the 1% of Americans who were clients of his firm, Fidelity Investments, and put their money in his Magellan Fund... me among them.
The Magellan Fund was the first mutual fund I ever put money into. I was getting my MBA at Kellogg School of Management at Northwestern University and then working at Goldman Sachs when Lynch was at the top of his game.
Lynch built an empire at Fidelity Investments by buying shares of simple businesses... ones he understood and saw in his daily life. He argued that investors could find stellar investing ideas just by keeping their eyes open to what was happening around them.
In fact, that's the best way to do it. Lynch tells a story in his 1989 book One Up on Wall Street – which I consider a must-read for investors – which he called the "Harry Houndstooth" tale...
Henrietta discovered a terrific bargain at a new, popular store at the mall...
She rushed home to tell her husband, Harry.
That's when Harry made a mistake. He ignored her new clothes... and the store she bought them from.
Instead, he was reading about the upside in Winchester Disk Drives. And though Harry didn't know anything about how disk drives worked, the Wall Street Journal and the reports he got from his broker suggested they were the next big thing.
You may see where this is going...
Harry's wife kept spending money at the new store, The Limited, that she and her friends loved. That was the stock to buy.
Harry instead had his head buried in research reports and ended up following the crowd. His investment in Winchester dropped by half.
On the other hand, The Limited grew for nearly two decades. (In 2017, it filed for bankruptcy... Even great businesses don't always stay great forever.)
You don't need a degree in finance or a million-dollar research department to find out what businesses are doing well. You can see it every day. This is America, after all. Our lives are commerce.
You saw iPhones filling everyone's hands, burritos filling everyone's bellies, or brown boxes sitting on every doorstep. And you could have bought Apple (AAPL), Chipotle Mexican Grill (CMG), or Amazon (AMZN) at practically any time and done very well.
While it's easy to get caught up in valuations, balance sheets, and interest rates, sometimes you need to keep it simple: Buy what customers are buying.
If you love mountain climbing – you know what brands the outdoor types are buying these days. If you love cars, you may know which carmakers are coming out with the next great electric vehicle.
You can do the same. Your hobbies become your area of expertise... and expertise can be turned into investments that make you money. That's the way the world works.
Take a page from Peter Lynch's playbook. It's how I've scored some of the biggest winners in my life.
What We're Reading...
- Something Different: JPMorgan Chase CEO Jamie Dimon warns this is "the most dangerous time" for the world in decades.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
October 18, 2023