Peter Lynch of Fidelity Managed the Magellan Fund
Market Wizards Index: +30%
Compound annual over 11 years
Fund or affiliation
Magellan Fund, Fidelity Management
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 werent 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 companys 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.
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
Lynchs 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.