I got an awesome surprise today. This morning I woke up with the intention to enjoy my Saturday and to do a lot of reading. But this afternoon when the mail arrived, I got hit with a day-changing surprise. Barron’s arrived and the legend, Peter Lynch, was on the front cover! I stopped what I was doing, grabbed a coffee, and dove into the interview.
Peter Lynch is one of my heroes. His book One Up On Wall Street had a big influence on me when I read it a few years ago, and I keep the book prominently placed on one of my bookshelves, in order to see it all the time and to remind myself to reread it annually, or to just thumb through it from time to time for inspiration. Additionally, on a personal level, I like the Peter Lynch approach to life. He got in the arena, did his work at a world-class level, made his money, and moved to a different, less-public stage of his career, and I love that model.
I caught a very interesting nugget during the interview. Barron’s asked Lynch if he had beaten the market over the long run, since his very market beating days at the Magellan Fund, and they said that Lynch answered by telling them what he had done with his late wife’s IRA. He said she invested $750 into it from 1974 to 1978, and that’s it, a total of $3,750. Since then, they have withdrawn $3 million for personal expenses, and when his wife passed away in 2014, the account was worth $8 million.
$3,750 into $11 million. Let that soak in.
What kind of return would Peter Lynch have had to make in order to get these results? Let’s break it down from what we know. We know his wife put in $750 a year for five years, a total of $3,750. We know they withdrew $3 million. And we know $8 million was still there in 2014. We don’t know when the $3 million was withdrawn, and we don’t know how much the account was worth when she stopped making contributions after five years, so we can’t get an exact return. But being as conservative as possible, just for the sake of this exercise, let’s say the starting capital was the full $3,750, and let’s say the $3 million was never withdrawn until the very end and it was a full $11 million in 2014. With these most-conservative assumptions, the rate of return would have been 22%.
Of course not all $3,750 was in there in year one, and the $3 million was likely taken out in chunks in the later years, and both those facts make the 22% understated. The rate of return had to have been higher than 22%, and that’s very impressive, world-class. I ran a check online and it looks like the S&P 500 did around 11% during that time period.
How did Lynch get this better than 22% return over 40 years investing in stocks? He makes it clear in the in interview that he’s a big fan of investing in companies that are growing, and specifically growing their sales. I’m having this realization myself currently, and this interview was very timely for that reason. I’ll be writing more about this in the coming days.
Peter Lynch’s ability to turn $3,750 into $11 million in his wife’s IRA is an inspiring and motivating story. And this unexpected interview with Peter Lynch made my day.