Collection: Peter Lynch - #10 'My Approach to Investing'



[Transcript]

CHARLIE ROSE 00:00

Did you still – back to you, you were still with the fund.


I mean you were there – you are the manager of the fund. You run the funds. She runs the foundation, you run the fund.


PETER LYNCH 00:08

Right, I manage the money but she makes, she finds all the great ideas.


CHARLIE ROSE 00:11

Does she really? So the division of labor is that you make the money and she gives it away?


PETER LYNCH 00:15

That's right. She actually – she found Teach for America. Wendy Kopp was like 21 when she founded Teach for America [Inaudible], national mentoring partnerships.


I mean she's the one that's finding – we have lots of proposals, she narrows it down, she does a lot site visits. I attend some of these meetings, we have board meetings but I'm basically – I'm on the investment committee.


CHARLIE ROSE 00:34

Do you miss anything?


Do you miss about the life that you had or do you simply say I have a portion of it, I'm making investments for something that means a lot to me and I know where the fruits of my labor are going. They're going to improve education and other projects I believe in.


PETER LYNCH 00:52

Well, the nice thing – I'm actually running money for our foundation and for ourselves so I'm actually doing some causes.


CHARLIE ROSE 00:59

Some in fund and foundation fund.


PETER LYNCH 01:00

But all I have to say is my wife is my only boss.


CHARLIE ROSE 01:03

Yes.


PETER LYNCH 01:04

When I was running Magellan, one out of every hundred Americans was in the fund. These are people that $5,000 and $10,000 was a huge deal to them. So when the market went down you felt really badly. I mean it's really the pressure on you when it's average people's money.


CHARLIE ROSE 01:17

Yes.


PETER LYNCH 01:18

That's overwhelming. And you're nice enough to say nice things about Magellan but in those 13 years ten times it declined over 10 percent.


CHARLIE ROSE 01:25

Yes but your point was that you were confident enough to say you know when it's declining to know when to give up and when not to give up most of the time.


PETER LYNCH 01:35

Right. And I say when the market went down I would always go down.


CHARLIE ROSE 01:37

Sure, sure. But you wouldn't go scared because you'd invest in a company.


PETER LYNCH 01:41

That's right I'd just say if the company's fine, it's fine. I mean basically Johnson & Johnson was higher four years ago, the earnings are higher. [inaudible] was lower four years ago, the earnings are lower.


CHARLIE ROSE 01:50

Yes of course.


PETER LYNCH 01:51

That's what happens to a company.


CHARLIE ROSE 01:52

But you also, I mean I know lots of people who are doing stunningly well in the world of investments and finance and they do it by a study of macroeconomics.


PETER LYNCH 02:04

Right, right.


CHARLIE ROSE 02:05

You never bought into that?


PETER LYNCH 02:06

[Inaudible] I was bottom down. I was lucky in my life. I owned a lot of – I owned American motor inns, hospitality inns, united inns in New York. And I said "Who's your best competitor?" And they said "La Quinta Motor Inn."


CHARLIE ROSE 02:20

I remember this, yes.


PETER LYNCH 02:21

I owned it before Sunset. If somebody ever says something nice about a competitor, you know, it's true. They always [inaudible].


CHARLIE ROSE 02:26

You can get them to say what they worry about – somebody is doing it maybe better than I am.


PETER LYNCH 02:30

They have a better formula. We can't match the formula. So I visited and I made a big position of Magellan, it was a huge success.


CHARLIE ROSE 02:36

Yes how long did you stay with it?


PETER LYNCH 02:37

I think seven or eight years. A great, great success.


CHARLIE ROSE 02:40

How do you know when to get out?


PETER LYNCH 02:41

Well, in baseball analogy and I know you're a great baseball fan. You want to get in the first, second, third inning, not when they're drawing up the lineup.


CHARLIE ROSE 02:48

Yes (Laughs).


PETER LYNCH 02:48

And Walmart – can buy in Walmart –


CHARLIE ROSE 02:50

Wait, wait, you don't want to do it when they are drawing up a line? You want to wait until the second and third inning because you want to have seen them at bat?


PETER LYNCH 02:55

They got it right, they got the formula right. And now there's Toys "R" Us on 20 stores on the way to 500. Or Home Depot on 40 stores on the way to 4,000. [Inaudible] bought Walmart ten years after they went public, they went up 50 fold. It's already up 10 fold, that's 500 fold.


Ten years after they've gone public they own 18 percent of the United States. They went to 19, 20 – so you can say to yourself there's a lot of room to go. But when you're on every state and when Limited get to every single mall in the United States with Express and Limited, you say to yourself, they're in the eighth or ninth inning, where can they go?


CHARLIE ROSE 03:25

Yes.


PETER LYNCH 03:25

So that's how you define it. It's cyclical when it goes from crummy to semi-crummy you're happy. Then it goes to good you're happy. Then it goes to very good, you say maybe I ought to go on to something else.


CHARLIE ROSE 03:34

Can you be greedy in your business?


PETER LYNCH 03:36

Yes, I think sometimes – I call it the three Cs; it's called complacency, concern and capitulation.


So you can place it as – I don't know about greedy. Just everything's going right and you start forget to check the facts and you say things are starting slip in the [inaudible], So being complacent is the worst one.


CHARLIE ROSE 03:57

And is that the one that happens most often?


PETER LYNCH 04:00

Yes well unless you're working hard. If you're working hard you're always checking with competitors you're checking with customers, suppliers; you are trying to do work to find out is this company still early? Do they have years and years of growth ahead of them? Then you stay with it even the stock goes down.


CHARLIE ROSE 04:15

There is also this idea of never invest in something you don't really know. I mean that was part of – that's why you went out on the road so much?


PETER LYNCH 04:21

Right, right.


CHARLIE ROSE 04:21

If I don't understand it I don't want to –


PETER LYNCH 04:23

Yes the key thing is when the stock goes from 10 to 6, if you understand what they do and you know they're financially solvent you're fine.


If you don't understand it you can call the psychic hotline. But if you don't understand it you'll probably going to do the wrong thing. You know, if you understand exactly what they're doing it's gone 10 to 6 you'll buy more.


If you're confused to start with, you'll say well there must be something wrong here. And then you're out. A lot of times stocks are going to decline. I mean some of my best stock they go 18 to 8 then to sometimes to 40. And some have gone from 18 to 0 but at least I wasn't adding to it on the way to 0. A lot have gone to –


CHARLIE ROSE 04:54

So if it's going down you're not adding to it. I mean sometimes you are.


PETER LYNCH 04:56

If [inaudible] better or the same. But if they're deteriorating, I'm going to leave.


(Source: https://charlierose.com/videos/17771#)

 

[YAPSS Takeaway]