How Peter Lynch turned Fidelity Magellan Fund’s $18 million into $14 billion in 13 years

When Peter Lynch took over the Fidelity Magellan Fund in 1977, it was an obscure fund holding $18 million in assets. By the time he stepped down in 1990, Magellan managed over $14 billion. Over those 13 years, Lynch generated an average annualized return of more than 29%, nearly double the S&P 500 performance over the same period, cementing his status as one of Wall Street’s most legendary stock pickers.

Peter Lynch is known for his invaluable stock market lessons. The market expert who built one of the best track records in mutual fund history during his stint as Fidelity Magellan fund manager, wrote the popular book ‘One Up on Wall Street’.

Lynch pioneered an approach centered on accessible, research-driven stock selection. Here are some of the key principles he followed.

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Invest in what you know

Peter Lynch has consistently advocated that investors must have a proper understanding of what the companies do before investing in them. It is in fact one of the core principles of his popular book ‘One Up on Wall Street’. “I have this expression: ‘Know what you own’. If you don’t understand what you own, you are toast,” he said.
The market veteran quipped that people spend hours researching flights to ensure they get the best price. But when it comes to investing, “they will put $10,000 in some crazy stock they heard on the bus”.Hunting for tenbaggers

Legendary American investor Peter Lynch popularised the concept of tenbaggers, helping investors find stocks that could deliver more than 1,000% returns in the long run. He urged investors to notice products and brands people love and use everyday. He believed in the principle of buying what you know.

During his tenure as Magellan’s portfolio manager, Lynch bought more than a hundred ’10 bagger’ stocks, including Fannie Mae, Ford Motor, Philip Morris International, Taco Bell, Dunkin’ Donuts and General Electric.

Amid the noise, Peter Lynch advocated focusing on finding potential ‘tenbaggers’ instead of making excessive trades. As Peter Lynch puts it in his book ‘One Up on Wall Street’, “All you need for a lifetime of successful investing is a few big winners”.

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Find just a few stocks that can 10x your wealth

Amid the noise, Peter Lynch advocated for focus to find potential ‘tenbaggers’, which are stocks that can grow tenfold, instead of making excessive trades. As Peter Lynch puts it in his book, “All you need for a lifetime of successful investing is a few big winners”.

Tenbaggers typically are not the companies everyone is already talking about. They instead are often overlooked gems that one discovers through research or personal observation.

Research well before investing

While Peter Lynch advocated for buying shares of companies that one knows well, he warned that should be done only after proper research. One should not just buy the shares of her neighbourhood restaurant or her favourite clothing brand just because she sees a long list of customers there every day.

This should only mean that the company should be added to her research list, and she should invest only after properly knowing about the company’s financials, growth prospects and more, according to Lynch.

Predicting stock market is total waste of time

Peter Lynch believed that predicting the stock market is a total waste of time. “People get too carried away. They try to predict the stock market. That is a total waste of time,” he said, adding that people spend an unbelievable amount of mental energy trying to pick what the market’s going to do, what time of the year to buy it. “It’s just not worth it,” according to the market veteran.

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Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.