Retired fund legend offers sound advice

Your Money

October 29, 2006|By ANDREW LECKEY | ANDREW LECKEY,Tribune Media Services

When famous people retire, it's fascinating to see what they do with themselves.

Johnny Carson disappeared from the public eye and played tennis after he retired as host of The Tonight Show. I would see cigar-chomping Milton Berle in the halls of NBC decades after The Milton Berle Show ended. He did TV and movie guest shots.

Former President Jimmy Carter has been talking publicly about tensions with North Korea. In 1994, after his presidency, he obtained an agreement with North Korea that it would stop processing nuclear fuels in exchange for normalization of relations.

Former President Bill Clinton is writing and giving speeches for large sums, while encouraging another politician in his family.

Peter Lynch, once the superstar portfolio manager of Fidelity's Magellan Fund, had impeccable credentials when he retired in 1990, at age 46. He made millionaires of many shareholders.

During the 13 years he ran Magellan, it had a 29 percent average annual return that easily outperformed the market. It grew from $20 million in 1977 to about $15 billion in 1990. It was the largest stock fund in the world, and he was the king of the investment hill.

Lynch has kept his hand in many philanthropic ventures. He and his wife, Carolyn, gave $10 million to Boston College in 1999 for what is now the Lynch School of Education. Lynch, the author of several best-selling investment books, writes articles and gives talks while retaining ties with Fidelity.

When I have spoken with Lynch, he has exhibited little ego about his accomplished past. In this current period of stock market euphoria, Lynch's common-sense tenets are timeless and bring us down to earth.

He believes in flexibility and warns against getting stuck in one investment style as times change. It makes more sense to know as much as possible about a company before investing than to try to predict economic, interest rate and stock trends.

Fast-growing and emerging small companies are his favorites, especially if few experts follow them and management buys its own stock. He will happily invest in a dull-sounding company if it has potential. Diversity is key to his strategy.

Lynch notes that all stocks fluctuate, some really are clunkers and that it's a waste of time to fret over missed chances.

Buying based on a stock's individual story and the knowledge you have of it doesn't sound like rocket science. Yet investor after investor disregard that logic and buy something they don't understand at all.

Andrew Lackey writes for Tribune Media Services.

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