THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Thursday, November 9, 1995 TAG: 9511090360
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 109 lines
His message was simple. Skillful investors don't need advanced math or insights on the direction of the Dow Jones industrial average.
What they do need are patience and a willingness to do some homework.
Drawing on a mix of experiences from managing the world's biggest mutual fund, Peter S. Lynch told a near-capacity audience Tuesday at Chrysler Hall that individual investors have to learn what a company does before buying its stock.
Too often, the same individuals who shop for hours to save $300 on a plane ticket will rush to buy shares of a company they know nothing about.
``People who are very good at everything they do for some reason go cuckoo when it comes to the stock market,'' said Lynch, who expanded Fidelity Magellan's assets from $22 million to $13.3 billion in slightly more than a decade.
The retired money manager was in Norfolk as part of The Norfolk Forum series of public speakers.
The lean, 51-year-old Lynch developed a reputation for grilling corporate executives and combing financial statements. Economic and interest-rate forecasts, he said, proved useless when picking stocks.
Economists failed to warn that the recession of 1980-1981 would be the country's most serious downturn since the 1930s. And the so-called soft landing that was predicted for 1990 turned into a full-blown recession.
``If you spend over 13 minutes a year on economics, you've wasted 11 minutes,'' he joked.
Instead of worrying about the future, investors should focus on economic details that could affect a particular stock.
``When I own an auto company, I want to know what's happening to used-car prices,'' Lynch said. ``When I own a steel company, I want to know what's happening to scrap prices.''
Lynch also cautioned against trying to determine a stock's prospects by judging the quality of a company's management. Management, he said, may be the most important variable for a company's success, but it's impossible for an outsider to measure.
``I've always said I want to buy a company that any fool can run because eventually one will,'' he said.
The companies that attracted Lynch's attention when he headed Fidelity Magellan were smaller ones that other institutional investors ignored and large, battered ones that had fallen out of favor on Wall Street.
A small company that proved especially profitable for Magellan was Dunkin' Donuts Inc., Lynch told his Chrysler Hall audience. He bought its shares because Dunkin' Donuts was good at what it did and its operations were easy to understand.
``In a recession, you don't have to worry about low-cost Korean imports,'' he said. ``You don't have to worry about somebody inventing a new doughnut.''
Too often, individuals know nothing about a company's operations but justify buying its stock by telling themselves ``The sucker is going up,'' Lynch said. ``If that's the reason you buy a stock, you're in for a rough ball game. That's the first inning of a losing game.''
As the head of Fidelity Magellan, Lynch often bought stocks in European companies at a time when few securities analysts were interested in Europe. But he cautioned individuals against buying stocks in overseas companies unless they were very familiar with developments in that country.
Rather than bemoaning missed opportunities, individuals should look for six or seven promising companies and then buy shares in three or four, Lynch said.
``People torture themselves by saying, `I missed Microsoft. I missed Home Depot' ,'' he said. ``Don't worry about it. You're going to miss a lot of them. All you need are a few (great performers) in a lifetime.''
Lynch's fascination with finding promising stocks began when he worked as a caddy at a Boston-area golf course. After earning a master's degree in business administration at the University of Pennsylvania's Wharton School and serving a stint in the Army, he joined Fidelity Investments as a research analyst in 1969.
By 1974, Lynch had been promoted to research director. Three years later, he took over as manager of the company's Magellan Fund.
By the time Lynch stepped down as manager of Magellan in May 1990, the fund had become a household name. More importantly, Magellan's investment performance routinely surpassed the Standard & Poor's 500 index and other benchmarks.
That triggered concerns among some Fidelity Magellan investors that the fund's performance might falter in the wake of Lynch's departure. The fund, however, continued to generate strong returns, and its assets have surged to $53 billion.
As he did in his two books about stock-market investing, Lynch told his audience Tuesday that ordinary individuals can become successful investors on their own.
But individuals will have difficulty matching the sorts of returns that Lynch rang up at the Magellan Fund, said Don Chance, a finance professor at Virginia Tech in Blacksburg.
``Most people do not have the time or the access to a company's management that Lynch had,'' said Chance, who expressed admiration for Lynch's investment skills. ``He had the ability to pick up the phone and talk to the management.''
Since leaving Fidelity Magellan, Lynch has maintained close ties to Fidelity and serves as vice chairman of Fidelity Management & Research Company. He also works as a coach with new research analysts at the company.
However, Lynch has spent the bulk of his time advising several charitable and nonprofit institutions in the Boston area.
He also is working on a third book, ``Learn to Earn: A Beginner's Guide to the Basics of Investing in Business.'' The book is due to be published in January. ILLUSTRATION: Color photo by Gary C. Knapp
Peter Lynch discussed investment strategies Wednesday before a
near-capacity audience at Chrysler Hall. He was in Norfolk as part
of The Norfolk Forum series of public speakers.
by CNB