Friday, July 26, 2013

Beating The Street by Peter Lynch

Famed investor Peter Lynch took the Magellan Fund from $18 million in 1977 (when he took charge) to $18 billion when he resigned in 1990, posting a 29% average annual return in the process. The way Lynch achieved those returns is discussed in his book, Beating The Street.

Across a number of industries, Lynch discusses the key success factors that drive a company and its stock's performance. He shares the attributes he looks for in banks, retailers, restaurants and a number of other industries, suggesting he has a wide circle of competence.

While there are value elements to Lynch's approach (though he doesn't bring up Phil Fisher, Lynch definitely uses scuttlebutt to his advantage, and is clearly a fan of low P/B and low P/E), I have to say I was somewhat surprised to learn how Lynch analyzed his stocks under consideration. There was little discussion in the book about competitive advantages, but there was a lot of talk about industry trends. Lynch appeared to have his finger on the pulses of various industries, as he spent a lot of time talking to managers and gleaning trends.

The other surprising element was the sheer number of stocks in Lynch's portfolio. He achieved his 29% returns not by concentrating in a few stocks that rose in value, but by investing in hundreds of companies at once(!), all of which he followed himself. It's probably worth noting that the market was up over 15%/year in the 13 years Lynch put up his remarkable returns; though we won't get the chance, it would have been nice to be able to observe Lynch over a longer time period.

You can get the book here.

2 comments:

楊大寶 said...

Hi Saj,

This is a completely unrelated question... But I'm wondering if you can recommend books on securities regulation, corporate disclosure, transaction...etc. , just topics in this nature. I feel like investors who are able to depict transactions and subtle corporate fillings have a good advantage over others.

Also, I have read Howard Marks's "The most important thing". In the book, Marks mentioned one good buying opportunity is to buy when others are forced to sell other than fundamental reasons. One situation I can think of is when you have an investor owning a large amount of shares through margin, but the stock is falling and he can't make the margin call so he is forced to sell. My questions are, where can you see how much margin are used on a particular company, and how much margin can be used on that company? Can you see this information from a particular SEC filling?

I have enjoyed you blog for a long time, and really apreciated if you can be kind enough answer my questions.

Saj Karsan said...

Hi 楊大寶 ,

Unfortunately I don't know any books on that topic, but I'd be interested in knowing if you come across one.

I also don't know how you can get margin info on an individual company; I'm not sure it's possible!

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