Ex-Fidelity guru still big on stocks

LYNCH: MAN WITH A MISSION

March 09, 1993|By David Conn | David Conn,Staff Writer

WASHINGTON -- Peter Lynch, the former Fidelity Magellan Fund manager and investing legend, is a man with a mission, a preacher with a simple, two-word message: Buy stocks.

It's been almost three years since Mr. Lynch retired from his 80-hour-a-week job at Boston-based Fidelity Investments to spend more time with his family and his charities (though he returned in December to a light schedule of advising Fidelity's analysts).

And it's been four years since the publication of his best-selling book, "One Up On Wall Street," written with financial author John Rothchild.

That book conveyed the straightforward "do-your-homework" and "buy-what-you-know" investment philosophy that Mr. Lynch used to increase his shareholders' money by 2,800 percent during the 13 years he managed Magellan. In 1977, when he took over, the fund managed all of $18 million in assets; when he left in May 1990, it held $14 billion.

Unfortunately, Mr. Lynch laments, people apparently haven't gotten the message. And that's why he has followed up with "Beating the Street," again with Mr. Rothchild. The book is the reason for his whistle-stop tour around the country -- with all proceeds again going to charity, he noted.

Relaxing for an hour yesterday in Washington's Union Station over a rich, chocolate dessert and a diet cola -- he laughs at the contradiction -- the 49-year-old father of three talks about his new book, and his mission.

"I feel bad that the public has done poorly in the stock market," he says. "I think it's a national disgrace what people have done in the stock market."

In 1960, 40 percent of household assets were invested in either stocks or equity mutual funds. By 1980, that number had fallen to 25 percent. And though the '80s was the second best decade for stock market performance this century, the percentage of household assets invested in stocks fell to 17 percent by 1990.

While the Dow Jones industrial average has climbed to almost 3,500 from 777 a decade ago, the number of "rich shareholders" stayed the same, Mr. Lynch said, though their combined wealth certainly did not.

So in "Beating the Street," Mr. Lynch has fleshed out his investment theories with his own stock-picking practices: how he came up with the ideas in the first place, the research he did to confirm his ideas, and the follow-up needed to decide when to hold and when to sell (and often when to buy back again).

Individual investors actually have an edge over Wall Street's professionals, he argues. The professionals tend to invest with a herd mentality and tend to be hampered by the type and amount of stocks they can buy.

"In every industry and every region of the country, the observant amateur can find great growth companies long before the professionals have discovered them," he writes in a section of the book called "20 Golden Rules."

After all, fully 75 percent of fund managers fail to match the performance of the S&P 500 stock index. By contrast, a colorful example from the book shows what happened when the seventh-grade class of St. Agnes School outside of Boston applied Mr. Lynch's advice from "One Up On Wall Street."

The students invested a hypothetical $250,000 in companies they knew and whose concepts they could "illustrate with a crayon" (one of the few dozen "Peter's Principles" in the book). The investments, in stocks such as Wal-Mart, Nike and the Gap, earned the students a 70 percent return in two years, better than 99 percent of all equity mutual funds.

Some of Mr. Lynch's best picks came from watching his three teen-age daughters shop at a nearby mall, an exercise anyone can repeat, he assured, with or without the daughters. Once you find a company that seems to be doing well, such as the Supercuts haircutting chain, or the Au Bon Pain bakery -- both of which he raves about -- it's essential to do the homework: get a copy of the annual report; be sure the balance sheet is healthy; maybe call the company's investor relations office for more details.

"If you made it through fifth grade math you can look at a balance sheet and see if [cash-flow] is going up or down," he maintains. Investing in a stock without doing the homework is like playing poker without looking at your cards, says the lanky Bostonian.

Finally, don't be discouraged if a few of your stocks don't work out. An individual only needs to keep up to date on eight or 10 companies, he says, and be invested in a maximum of five at any one time to do well in the market. One is bound to underperform your expectations, three are bound to meet your goals, and the one that soars beyond all hope will lift the entire portfolio.

Above all else, Mr. Lynch said, don't let the magazines and newspapers scare you away from the market. "It's OK if you're convinced by the media that you can't play basketball against the Celtics," he said, but the stock market is not "a hopeless game."

LYNCH'S GOLDEN RULES

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