July 26, 2014

There Is a Lot of Wisdom In Peter Lynch’s Approach to Wealth

When Peter Lynch was 33 years old, he was put in charge of the obscure Magellan fund, which had $18 million in assets.  This was 1977, so today that is about the same as $63 million.

Peter Lynch

After achieving one of the best investment records in Wall Street history, Peter Lynch went semi-stealth.

The amazing thing about Peter Lynch is, it would have been effortless for him to raise billions of dollars for a hedge fund.  He could have literally been worth billions of dollars but he simply wanted to retire.  The man was the greatest investor in the world when he left Fidelity, literally up there with Warren Buffett when you adjust for the structural differences between a holding company and a mutual fund holding non-leveraged equity securities.  In fact, if you were to put Buffett and Lynch head-to-head with some ground rules, such as only holding 30 stocks in a portfolio and no leverage allowed, I’m not sure who would win after a decade.  That says everything.

Don’t misunderstand me – Peter Lynch is rich.  He’s obscenely rich by world standards.  One publication estimated that he had built a personal fortune of more than $350 million as of 2006, having spent the past decade or two managing his own money from a private office in Boston that very few people know exists.  At a 12% rate of return, which is far less than he earned as a professional, Lynch would be making $3.5 million per month in profit on his personal fortune.  He gets to walk out in public without being bothered, unlike Warren, and still sit in an office and do what he loves, which is find great stocks.

The problem with a lot of young investors is they make the mistake of thinking that Buffett must be smarter, or better, because he has $40 billion to $60 billion whereas Lynch has “only” $350 million.  That’s idiotic.  Both men are brilliant; you cannot use their net worth as a barometer.  If Buffett had decided to retire after wrapping up his partnership in the 1960′s, he’d be worth a few billion dollars today but certainly nowhere near what he has with Berkshire Hathaway.  Would he be any less intelligent?  Likewise, if Peter Lynch had gone into a hedge fund structure instead of a mutual fund, he’d be one of the wealthiest men in history. Would he magically be smarter than he is or better at picking stocks?  Of course not!  Both men chose the type of life they wanted to live and they did it.  Practically, from a utility standpoint, there is nothing that Buffett can buy that Lynch can’t.

As Charlie Munger likes to say, “You only have to get rich once.”  Anything above “rich” is gravy.

  • innerscorecard

    And you can then take this to the logical reductionist conclusion, which is what Mr. Money Mustache does. Anything above about $1 million or so is gravy (due to hedonistic adaptation), so you may as well retire when you hit that amount.