"People are wasting time trying to predict the future": highlights from the Peter Lynch interview

Renowned investor Peter Lynch, who managed the Fidelity Magellan fund from 1977 to 1990 and gave it record returns, gave a big interview to The Compound and Friends podcast for the first time in a long time.

Lynch began his career at Fidelity Investments in the late 1960s as an intern and analyst. A few years later, he took over the Magellan fund, becoming one of the youngest managers in the company's history. After leaving the fund at age 46, he devoted himself to philanthropy and educational work. His books "The Peter Lynch Method" and "Outplaying Wall Street" have become desk-top books for private investors, and his formula "invest in what you understand" has become a classic of investment thinking.

In the conversation, the 81-year-old Lynch recalled his main lessons from his decades in the market. He discussed why you can't "play the market," how you shouldn't try to predict crises, why private investors can outperform Wall Street - and why, despite volatility, the U.S. economy is more resilient today than ever before.

For decades, Lynch has adhered to the "invest only in what you understand" rule. In a conversation with Ritholtz Wealth Management founder Josh Brown, he recounted a long ago call from singer and actress Barbra Streisand. He said she admitted to owning a few stocks but didn't know what the companies were doing or what to do with them.

"People are very cautious: they spend hours to save 50 bucks on airfare. They're researching everything. And yet they'll invest $10k in some crazy promotion they heard about on the way on the bus - and they have no idea what they're doing. And someone invented this horrible term, long before I got into this business, 'playing the market,'" Lynch says.

"Play," he said, is "a very dangerous verb." "Playing the market is not what you should be doing. You buy good companies and you should know what they do," he added. Lynch emphasizes: an investor should be able to explain to an 11-year-old in a minute or less why he or she owns stock in a particular company - not because "this thing is going to grow," but because the business has an understandable logic and a real reason to grow.

Over the 13 years under Lynch's management, Magellan's fund showed an average annual return of 29.2%, a result that is still considered a benchmark. The fund's assets grew from $18 million to $14 billion.

Lynch himself emphasizes: the formula for success in investing remains the same as it was decades ago. "The investment business hasn't changed much over the years," he says. - We've just used public information and observation. Amazon, Costco, Walmart - those were the stories that were out there." His first investment in Magellan was the Taco Bell chain, which he saw then as a clear and scalable business. The principles of selection are the same now, Lynch believes: look where others "aren't interested" and look for companies going from weak to improving - with transparent economics and verifiable facts.

But some things have changed in the market. Lynch notes with regret that the number of public companies in the US has fallen from 8,000 to 3,000-4,000, and some promising businesses are leaving the stock exchange - they are being bought out by large private funds before the company can reach its potential.

After decades in the market Lynch is sure: there will always be reasons to panic, but history proves - the market knows how to recover. "In 1982, the Dow Jones index stood at 777 points. Since then, the market has gone through a dozen downturns and has always recovered," he recalls.

Compared to the Great Depression era, the U.S. economy is much more resilient today. There is social security, unemployment benefits, market regulation and an active Federal Reserve. These mechanisms, according to Lynch, work as "safeguards", preventing crises from turning into catastrophes.

He notes that the structure of wealth has also changed: while in 1929 only 1% of Americans owned stocks, now 63% own their own homes and are accumulating capital. For Lynch, this is the main sign of a mature economy: "We've survived a lot of bad presidents and congresses - and we've still made it through," he summarizes.

Lynch is skeptical of macro forecasts and attempts to "outplay" the market. He is convinced that investors too often focus on predictions instead of dealing with reality. "Investors have lost far more money preparing for or trying to anticipate corrections than they have during the corrections themselves," he says.

Lynch jokes that he "would love to have the next issue of The Wall Street Journal" so he could know in advance what's going to happen in the market, "I've been trying to get it for the last 81 years." But, Lynch says, life and investing don't afford that luxury. "People waste too much time trying to predict the future, even though it's not predictable anyway." Even professional economists, Lynch says, are wrong more often than they guess. "They've predicted 33 of the last 11 recessions," he jokes. So instead of endless discussions of the future, he prefers to look at facts - things that can be measured in the here and now: savings rates, employment, oil prices, industries that go from weak to improving.

sebockHe says the approach to investments should be common sense: if money is needed in the foreseeable future, it is better to choose the most conservative and low-volatility instruments: "If you have three kids going to college in two years, keep your money in money market funds, not stocks."

Lynch is convinced that the private investor can perform just as well as professionals. "The average person can make deals as good as Wall Street if they look for opportunities in the right places," he says. Lynch says most people follow the high-profile stories, at new highs, while he focuses on the lows. "Most out there are garbage, but some [stocks] are great." Those "great" companies, Lynch believes, are most often noticed by the private investor - the one who sees trends and products in real life, before analysts and funds.

A private investor's greatest advantage, according to Lynch, is not insider information, but the ability to maintain common sense and discipline when the market fluctuates. He advises recording the reasons for each purchase and returning to them over time: "Write down on the page why the stock should rise, what factors are contributing to it. It's disciplining." Patience, he adds, is equally important: "A stock can fall by half, but if you know what you own, that's no reason to panic," he adds. And, he reminds, "Selling winners and keeping losers is like cutting flowers and watering weeds."

This article was AI-translated and verified by a human editor