Just as the San Francisco 49ers have been dubbed the professional football team of the 1980s, so Fidelity Investment's Peter Lynch qualifies as mutual fund manager of the 1980s.
During the decade, Lynch's Magellan Fund posted an amazing 1,200 percent gain to rank tops in performance among equity funds. It finished strong in 1989 as well, with a 32 percent rise.Lighting up the fund's scoreboard through the 1980s were big-gainer stocks such as Chrysler Corp., Ford Motor Co., BankAmerica Corp., MCI Communications and Federal National Mortgage Association (Fannie Mae). Big winners in 1989 included Coca-Cola Co. and Pacific Telesis Group.
"I did miss out on stocks such as Marriott Corp. and Wal-Mart Stores, but you can afford some mistakes so long as you find some of the really good ones as well," the white-haired, distinguished-looking 46-year-old Lynch said during a lengthy interview. "Right now, the market is much more volatile, and I'm having to work harder to find stocks worth buying."
Lynch took over the fund in mid-1977. He's worked six days a week at Fidelity's Boston headquarters ever since 1981, but has lately taken to working Sunday mornings at home as well. He's always spent one week a month on the road visiting companies. Whatever it takes to get an edge.
As we begin the 1990s, Lynch has increased his cash position to $1.4 billion. He's cut back holdings of Ford, IBM, PepsiCo, UAL Corp. and AMR Corp. He's added Nestle and increased holdings of Smithkline Beecham, Unilever and United Technologies.
Lynch through the 1980s withstood taunts of so-called experts, who deemed it impossible to effectively manage such an enormous fund. Magellan does hold more than 1,400 different stocks. Those experts advised investors to look elsewhere for a growth fund.
Fortunately, most investors didn't listen. They kept on investing in Magellan. The fund rose during the 1980s from $35 million in assets to $12 billion, and boasts a million shareholders. While there were net redemptions in the period following the 1987 crash, that trend has turned around in recent months and the fund has been gaining new assets again.
"The theory that it was hopeless to manage such a big fund didn't hold up, for I've more than delivered in a difficult period, with my goal of beating the market by 4 to 6 percent a good one," said Lynch. "Some people who were driven to buy smaller funds may have lost their shirts, because some funds buy junk stocks just because those stocks represent small companies."
Lynch does like growth companies. But if there aren't any he's totally in love with, he's not afraid to move on to quality bigger companies, even if they're as mundane as, say, electric utilities or regional telephone companies.
The way he handles so many stocks without going daft is by buying those stocks he's generally interested in and, as conditions change, boosting his holdings of those he likes most.
"If there are five stocks that I like, I'll buy them and keep checking and checking and perhaps buy more," Lynch explained. "Many of my most successful stocks didn't begin to pay off until the second, third or fourth year I'd owned them."
The Magellan Fund's 10 biggest stock holdings are Fannie Mae, Philip Morris Cos., General Electric, Nestle, MCI, Smithkline Beechan, General Public Utilities, Unilever, Entergy Corp. and United Technologies.
"The key is buying the stock of a medium-size company and watching it become large over several years," said Lynch. "I remain flexible and don't try to predict the market or the economy."
Lynch's book on stock-picking, in which he urges investors to select the stocks of companies they personally know about, came out in 1989.
When I asked if he has plans for a follow-up, Lynch replied, "No, that book contains all I know. There's really nothing more to offer, since my philosophy isn't all that complex."
Not complex but, thus far, impossible to duplicate.