Legendary investor Peter Lynch gained a reputation for regularly beating the market while running the Fidelity Magellan Fund in the 1980s. Decades later, he has some advice for the next generation of investors.
The artificial intelligence boom has dominated the market for the past three years, but Lynch, who averaged 29.2% annual returns during his 13 years at the helm of Magellan through 1990, was happy to watch from the sidelines.
“I have zero AI stocks,” Lynch said on “The Compound and Friends” podcast with investor Josh Brown. “I literally couldn’t pronounce it Nvidia until about eight months ago.”
Lynch, who famously claimed that one in 100 Americans once had a stake in Fidelity Magellan, spoke on the podcast about his career, the lessons he learned along the way and, yes, today's enthusiasm for all things artificial intelligence. Here are five of the biggest takeaways:
Sit out AI
Megacap tech stocks have soared since ChatGPT launched in late 2022, leading many on Wall Street to question whether AI trading is reminiscent of the dot-com bubble of the late 1990s. Asked whether investors had pursued AI trading too far, Lynch said he had “no idea.”
Lynch said he doesn't understand technology enough to form an informed opinion about the market's optimism about AI.
“I’m the lowest tech guy ever,” he said. “I don't know anything about computers. I only have yellow pads.”
Lynch declined to discuss his current portfolio or the stocks he currently likes, citing Fidelity rules.
Why You Don’t “Play the Market”
Lynch has long advocated for investors to have a deep understanding of the companies in which they invest. This is a central tenet of his book “One Up on Wall Street.”
“I have this expression: 'Know what you own,'” Lynch said. “If you don’t understand what you own, you’re toast.”
Lynch said people spend hours searching for flights to make sure they get the best price. But when it comes to investing, he said, “They'll put $10,000 into some crazy stock they heard on the bus.”
He described the phrase “playing the market” as “terrible” and “dangerous.” Instead, Lynch said people should buy good companies and be aware of what they do.
Lynch said the average fluctuation of a typical New York Stock Exchange security in a given year is 100%, so investors need to know what to do when big moves occur.
Entry after the first inning
While it's conventional wisdom to buy stocks before they take off, Lynch warned against dismissing any investment ideas just because a security has already risen.
“Sometimes you don’t have to be in the first inning,” Lynch said.
Lynch gave as an example McDonald'swhich he was told long ago had already experienced rapid domestic growth. With international expansion, the hamburger chain recorded strong growth.
“People said, 'McDonald's is done,'” Lynch said. “They just didn’t think it through.”
Investment advantages today
According to Lynch, today's investors have “cushion” that did not exist before the Great Depression and the New Deal.
Lynch cited unemployment insurance, Social Security benefits and the creation of the Securities and Exchange Commission, which helps people over time. He also highlighted the Federal Reserve's active role in recent decades.
Investors today benefit from “so many things that are better,” Lynch said, citing more market and economic buffers than in the past.
Lynch said investors often braced for an economic collapse like the 1930s. But none of the market tests since then, not even the 2008-2009 global financial crisis, have had the same downside intensity.
“We had a lot of opportunities for a 'big one,'” Lynch said. “We’ve had some probably bad presidents, we’ve had some bad Congresses, we’ve had bad economists and we’ve done it.”
Future of work
Lynch reassured workers who wondered whether they would lose their jobs to AI.
In the early 1980s, about a million people were working AT&T alone at a time when the total working population was about 100 million. Although the telecommunications sector has grown, the leading companies now employ about 400,000 people, according to Lynch.
Today, the U.S. workforce has grown to over 160 million jobs. Americans can likely expect expansion in some sectors to offset loss in other sectors associated with technological advances or automation.
Lynch's comments come from executives at various companies Walmart To Accenture have warned that artificial intelligence will drastically change their workforce.
“It's a great country. We're creative,” Lynch said. “America creates, China duplicates, and Europe legislates.”
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