Collection: Peter Lynch - #15 'Hedge Funds vs. Mutual Funds'
[Transcript]
CHARLIE ROSE 00:00
Now, we've also seen sort of today the whole business of hedge funds and private equity and shadow stuff.
PETER LYNCH 00:07
Sure.
CHARLIE ROSE 00:09
And now they're talking about getting into the mutual fund business. What do you think of that hedge funds getting into mutual funds.
PETER LYNCH 00:17
Well a couple of differences you know between hedge fund and what I did in Magellan. I could only buy long. I couldn't short.
CHARLIE ROSE 00:23
Right. You can't sell short. And hedge funds can sell short right?
PETER LYNCH 00:26
Right. I couldn't buy commodities. I couldn't buy – I couldn't short the Euro. I mean they're in to a lot and they do it on leverage – a lot of leverage. So you have to be careful what you're getting into. Some hedge funds are very conservative. They're only going to be 20 percent short and mostly long.
Because it's a nice thing about occasionally if you have an idea – if I find an idea I thought was overpriced I just went on to the next thing, I couldn't short it. So there is an advantage to be able to short. But I found it long only –
CHARLIE ROSE 00:51
Well it's both with these hedge funds and you get into mutual fund, I mean you'll have to also live under the rules that mutual funds live under. And do you think they will be successful?
PETER LYNCH 01:00
Well I found that long –
CHARLIE ROSE 01:01
I mean they're obviously tracking some –
PETER LYNCH 01:02
The hedge funds on the long side have done the best.
They made up a little bit by being short but being right on the long side – because obviously if you're right you can make – and that's – I would say when I am in Magellan I might have been right six times out of ten but if I'm right I make a double or triple occasionally.
It all sets a time you lose 30 percent, 40 percent. In fact, you can be right a third of the time as long as you have lots of good results. So that's – when you're short you can only make 90 percent, when you're long you can make tenfold or fivefold so I think long is the way to be.
CHARLIE ROSE 01:36
And optimistic.
PETER LYNCH 01:38
Optimistic.
CHARLIE ROSE 01:38
Yeah.
PETER LYNCH 01:39
Well, careful and optimistic. (Laughs)
(Source: https://charlierose.com/videos/17771#)
