In rummaging around my stuff on Peter Lynch, I found the 1988 Barron’s Roundtable. The Roundtable, for those who don’t know, is a chance for fund companies to show off their star manager’s, talk their book, get some free press out it, and Barron’s can feed the demand for stock tips.
Tips aside, it’s Peter Lynch and the ’88 edition is interesting for a few reasons:
- Lynch mentioned roughly 110 stocks. Stock tips are overrated, but chasing after Lynch’s tips seems insane. Maybe his objective was to offer so many “tips,” it was easier to just buy the fund?
- Lynch says he owned “at least 1,500” stocks in the Magellan fund. The fund was so huge, he was basically limited to playing industry bets. And if memory serves, he beat the market in ’88 (along with his entire career).
- The fund managers — the Pros! — were still freaked out about the October ’87 Crash going into 1988 and worried about a recession.
- However, Peter Lynch was not.
Or Lynch didn’t show it.
The October 19, 1987 crash did in one day what the 1929 crash took two days to do. The Dow fell 23% that day — the single worst day ever.
The added worry is understandable. People responded the same way after the Financial Crisis. How many expected a double dip back then? In other words, it’s normal.
That said, Lynch responded to all the worries in one of the best exchanges I’ve read in a while. It’s a lesson in sifting through the noise to see what matters.
Lynch: …People always worry about something. I remember when people said oil was going to $100, and then we were going to have a depression. And the same people said oil was going to go to $5, and we were going to have a depression. We had money supply. Remember those Thursday nights when everybody worried about money figures; the M1s and M2s and M3s? Money was going to grow so fast we were going to have a depression. Now, the same people say money is growing too slow.
Neff: You don’t hear about M1 anymore.
Lynch: There’s always something to worry about. But it’s garbage to worry about these things. Philip Morris’s earnings went up about six-fold. in the last 10 years; the stock went up about six-fold. Merck’s earnings are up five-fold in the last 10 years; the stock is up four-fold. I don’t own any of these stocks; I can brag about them.
Q: None of that was any help on Oct. 19.
Lynch: No. But Avon Products is making less money than they did 10 years ago, and magically, the stock is lower than it was 10 years ago, and their balance sheet is worse. Bethlehem Steel is making less money than it did 10 years ago, and their stock is lower. You have to look at corporate profits, and see what’s going on in the company. It’s total garbage to worry about the thing that’s going to drive us to a 300 Dow. We’ll never be able to dream it up. It’ll be something you couldn’t imagine if you picked the brightest or the dumbest people in the world and assembled them for hours —
…
Q: Peter, do you think we’re going to have a recession, one these days?
Lynch: Sure, but why should we worry about it? We had the worst recession since the Depression in 1982-’83. We had 14% unemployment; 15% inflation, and a 20% prime rate. But I never got a phone call, a year before, saying we were going to have that.
Q: Yes, you did. In April 1981, you had a phone call, from the stock market.
Lynch: The market has predicted what, 12 of the last three recessions?
Q: That’s what Paul Samuelson said. It’s better than his record anyhow.
Lynch: The stock market has a 100% record, in the last 50 years, of predicting upturns in the economy. It’s never been wrong. It’s less than 50-50 on a downturn.
MacAllaster: The question that should be asked, though — we always have recessions — is whether it is in the market.
Lynch: It’s a very important question. Let me get this straight: I would love to know if we’re going to have a recession this year. Because I would change my portfolio. But the odds of me figuring that out — I’m never going to.
…
Lynch:…The one thing that does worry me is that on Oct. 20 and 21, there were meetings all over corporate America, where executives said, “A huge red flag has just been raised. Our business is terrific, but let’s make sure.”… The businessman was much more affected psychologically by the crash than the public — by a factor of 10. That’s why, if the market goes down another 500 or 1,000 points, then we’re in a new league. But we’ll have a big recession sometime. Big deal. Is that all anybody is going to worry about?
…
Lynch: the market went from 800 in 1982 to 1700 in September of ’86. It took four years to go up. Then there’s this crazy move, 1,000 points up, and then a crazy 1,000 points down, and we’re about where we were a year ago. The market just went up too much, and then it came down.
…
Shafer: Peter, have you, in your career, ever been bearish? I ask that seriously.
Lynch: Yes, I’m bearish when companies’ profits go to hell.
Q: But when will that happen?
Schafer: After the market goes down 1,000 points?
Lynch: That’s for sure. There will be a recession. But whether it’s going to in ’88 or ’89, I don’t know. Might be ’94. This theory that we have to have a recession every now and then — I’ve looked in the Constitution, stayed up late and read the Bill of Rights, and nowhere is it written that every fifth year we have a recession. People say, “Oh, it’s now so many months, plus a full moon, plus the election, and the Olympics, and therefore we have to have a recession.” It’s so crazy! You can have a good economy for three, four, five years.
…
Lynch: Why did the market go down in October? Because it went down in August and September. It scared people, so they cashed out.
Source:
Barron’s Roundtable 1988
Last Call
- Manage Risk, Don’t Fear It – B. Johnson
- Five Questions: Factor Investing with Jim O’Shaughnessy – ValIdea
- A Conversation with NYU Professor Aswath Damodaran – ElmPartners
- 4 Simple Tips for Successful Investing – J. Bogle
- Investors are Willing to Do Almost Everything – H. Marks
- CNBC Interview with Warren Buffett, Charlie Munger, and Bill Gates (video) – YouTube
- Buffett And Inverse Emotionalism – F. Martin
- Why You’ll Never Invest in the Next Big Short – A Wealth Of Common Sense
- Deep Dive into the Value Factor – L. Swedroe
- The Peculiar Blindness of Experts – TheAtlantic
- How Did James Holzhauer Turn ‘Jeopardy!’ Into His Own A.T.M.? We Asked Him – NY Times
