Fund Lessons From Peter Lynch

NEW YORK (TheStreet.com) -- Last week I shared a profile of growth stock investor Warren Buffett of Berkshire Hathaway(BRK.A). The Oracle of Omaha made his mark in the investment world by identifying companies with strong business models that can generate long-term profits.

This week we'll consider another growth investor who has made a significant mark in the investment world during the past several decades. He has his own approach to stock-picking and has influenced many of today's most successful and promising fund managers.

At ten years old, Peter Lynch worked as a caddy at Brae Burn, an exclusive golf club outside Boston. There he met many leading executives and picked up his first stock tips. He continued to caddy through high school and college at Boston University, where the young man studied history, psychology and philosophy.

He bought his first stock, Flying Tiger Airlines at $7 a share as a sophomore in 1963. The stock did well -- largely because the Vietnam War came along -- and Peter made more than 500% on his investment over the next few years.

Peter's caddying clients at the Brae Burn included D. George Sullivan, president of Fidelity Investments(FNF). Sullivan urged Lynch to apply for a summer internship at the company. Peter landed a spot and spent the summer after his college graduation at Fidelity. The firm put him to work researching companies.

Peter's profits from Flying Tiger helped pay for his graduate work at the Wharton Business School. He spent two years as an artillery officer in the army and went to work for Fidelity upon his release. He spent five years as assistant research director, and in 1975, the firm made him director of research. In 1977, he took the reins of the Fidelity Magellan Fund(FMAGX).

The rest is history. The fund gained 29% annually and grew from $20 million in assets to $14 billion by the time Lynch retired from the fund in 1990 at the age of 46. If $10,000 was invested in the Magellan Fund at the start of Lynch's tenure, it would have accumulated more than $288,000. That's impressive, especially considering that the same amount invested in a fund that matched the gains of the S&P 500 over the same period would have grown to only about $65,000.