DEFINITION of 'Peter Lynch'
One of the most successful and well known investors of all time. Peter Lynch is the legendary former manager of the Magellan Fund at major investment brokerage Fidelity. He took over the fund in 1977 at age 33. He ran the fund for 13 years and his success allowed him to retire in 1990 at age 46. His investment style has been described as adaptive to the economic environment prevailing at the time, but Lynch always stressed that you should be able to understand what you own.
BREAKING DOWN 'Peter Lynch'
Lynch developed an interest in the stock market through conversations he overheard while working as a caddy at an upscale golf club when he was 11 during a time when the stock market was performing well. He attended Boston College on a partial scholarship and paid the rest of his way by caddying. He graduated in 1965 with a degree in finance. In 1966 he worked as a summer student at Fidelity.
One of his first successful investments was in an air-freight company called Flying Tiger, which helped him pay for graduate school. He earned a master’s in business administration from Wharton School of Business at the University of Pennsylvania in 1968. He served in the army from 1967 through 1969.
At age 25 he got his first full-time job as a textiles and metals analyst at Fidelity. Having caddied for the company’s president for eight years undoubtedly helped him get the job.
In 1977 he took over the Magellan Fund, a small, aggressive capital appreciation fund created in 1963 that held mostly domestic investments. An investor who put $1,000 into the fund the day Lynch took over would have had $28,000 the day he left. Under his management, the fund returned an average of 29% per year and outperformed the S&P 500 for all but two years. Many investors commonly point to Peter Lynch as an example that active management can achieve superior results relative to the benchmark.
He is credited with inventing the price-to-earnings-growth (PEG) ratio that helps investors determine whether a stock is inexpensive given its growth potential, along with other stock valuation methods popular with value investors. Lynch thinks individual investors can perform well by investing in what they know and getting to learn about a company, its business model and its fundamentals. He believes in investing for the long term and choosing companies whose assets Wall Street has undervalued. He also thinks companies with below-average price-to-earnings ratios for their industry and for the company historically have the potential to perform well.
Lynch is the author of the bestselling investment books “One Up on Wall Street” (1989) and “Beating the Street” (1994). He created the Lynch Foundation to support education, religious organizations, medicine and more.