"Go for a business that any idiot can run, because.." (Peter Lynch)

“Go for a business that any idiot can run – because sooner or later any idiot probably is going to be running it."

Peter Lynch

Peter Lynch is one of my favorite investment gurus. Not only is he a legendary investor, but he's also a master of witty, engaging writing and speaking. As a result, he has many famous quotes. I plan to review one of Peter Lynch's books, which is filled with his famous sayings, in the near future.

Peter Lynch was born in 1944 and started his career as a research analyst at Fidelity in 1969. From 1977 to 1990, he managed the Magellan Fund, growing it from $18 million to $14 billion, making it the largest mutual fund in the world. The average annual return over those 13 years was an impressive 29.2%. To put that in perspective, if you had invested 1 million dollars with Peter Lynch in 1977, it would have grown to 28 million dollars by 1990.

Another interesting fact is that he retired at the peak of his career at the young age of 46. It's common for highly successful people to become fixated on maintaining their status and continue working well past their prime, but Lynch was different.

He retired early after realizing that while he could remember the stock codes of thousands of companies, he had forgotten his daughter’s birthday. This prompted him to reevaluate what truly mattered in life and to spend more time with his family. (This reminds me of a point made by Morgan Housel's advice from The Psychology of Money: No matter how enticing the potential reward, you should never jeopardize what truly matters in life - family, happiness, love, freedom, independence, reputation, or friendships. After retiring, Lynch continued to serve as Fidelity’s vice chairman (an honorary role) and focused on education and philanthropy.

Find a business that even an idiot can run!

The core of Peter Lynch's investment philosophy is: "Invest in what is simple and understandable." The quote I introduced today aligns well with this philosophy. If we interpret the phrase "Go for a business that any idiot can run":

It means investing in businesses with simple and easy-to-understand models, rather than those with complex and difficult-to-grasp operations. It refers to companies with clear products or services, straightforward revenue structures, and consistent customer demand. These kinds of companies typically have stable cash flow and are less affected by economic fluctuations.

Since even the most competent CEO will eventually leave their position, a company that doesn’t rely solely on the abilities of a particular individual - but instead operates based on its intrinsic value, solid management systems, or brand power - can be a stable long-term investment.

Conversely, this also means that even if a company's management is subpar, it can still run more or less smoothly. Similarly, investors with less expertise in analyzing companies should aim to invest in businesses with structures and outlooks that are easy to understand and can be trusted over the long term.

By the way, Warren Buffett said something very similar: "I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will." For me, it doesn't really matter whether Warren Buffett or Peter Lynch said it first. The fact that two investment giants are saying the same thing means it's truly advice worth paying attention to.

Economic Moat

I believe the phrase, “Go for a business that any idiot can run” is essentially the same as saying to invest in a company with a wide and deep economic moat. The term "economic moat" was first coined by Warren Buffett and refers to a company's unique advantages that allow it to maintain a long-term competitive edge over its rivals.

An "economic moat" can include various factors that make it difficult for competitors to replicate a company's success, such as patents or intellectual property protected by law, strong brand loyalty enabling a company to charge a premium for the essentially similar product, switching costs that make it hard for customers to change to a competitor’s products or services, network effects where the value of a product or service increases as more people use it, geographic location or monopoly-like advantages, or economies of scale that provide a cost advantage.

Peter Lynch’s Witty Insights

Peter Lynch is such a good writer that he has a wealth of memorable investment quotes. Here are a few that I’d like to share.

"Invest in what you know." [Neo: I think this is connected to the title quote, “Go for a business that any idiot can run” - invest in a simple business that you can understand well.]

"But rule number one in my book is: Stop listening to professionals!" [Neo: For instance, many investment professionals and economists were forecasting a soft landing until the severe financial crisis became evident in 2017.]

"This is investing, where the smart money isn’t so smart, and the dumb money isn’t really as dumb as it thinks. Dumb money is only dumb when it listens to the smart money." [Neo: Peter Lynch consistently advises not to listen to so-called experts. This reflects his view that many professionals either lack substance or don’t have aligned interests with individual investors. Also, if an investor chooses companies they can easily understand, they won’t really need expert advice.]

"The secret of his success is that he never went to business school. Imagine all the lessons he never had to unlearn." [Neo: I did say Peter Lynch has a sharp wit, didn’t I?]

"While catching up on the news is merely depressing to the citizen who has no stocks, it is a dangerous habit for the investor." [Neo: Individual investors should develop their own views, convictions, and investment strategies. Relying on news or others’ advice can result in buying high and selling low, or worse.]

"A successful stock picker has the same relationship with a drop in the market as a Minnesotan has with freezing weather. You know it’s coming, and you’re ready to ride it out, and when your favorite stocks go down with the rest, you jump at the chance to buy more." [Neo: We should remember this quote and remind ourselves that when the next bear market comes, it’s just a freezing winter that comes and then goes.]

"Investing without research is like playing stud poker and never looking at the cards." [Neo: This quote is brilliantly witty and sharp.]

"No wonder people make money in the real estate market and lose money in the stock market. They spend months choosing their houses, and minutes choosing their stocks. In fact, they spend more time shopping for a good microwave oven than shopping for a good investment." [Neo: Investing hundreds of thousands of dollars in stocks without taking the time to learn about and analyze a company is indeed illogical, especially when we dedicate so much time and effort to selecting a house or a car.]

"If you are undecided and lack conviction, then you are a potential market victim." [Neo: Those without conviction often tend to buy high and sell low. You need to do opposite to make money]

"Corporate profits are up fifty-five-fold since World War II, and the stock market is up sixty-fold. Four wars, nine recessions, eight presidents, and one impeachment didn't change that."  

The last quote was part of a speech Peter Lynch gave on October 5, 1994. Although the numbers have changed after 30 years, I believe the value of his words has only grown. Since 1994, there have been more wars, multiple severe recessions, four new U.S. presidents, and one of them became the first president to be impeached twice. Let's find out what happened to the stock market in the meantime.

On the day Peter Lynch delivered that speech, the S&P 500 closed at 453.52. Fast forward to last Friday (October 18, 2024), the S&P 500 closed at 5,864.67. Despite all the turmoil over the past 30 years, the S&P 500 has risen 12.9 times. Peter Lynch's message to us, as individual investors, is clear: although the world may seem fraught with danger, the long-term outlook is positive. Therefore, it's essential to invest with a long-term, optimistic perspective.

I hope you’ve picked up at least one or two inspiring quotes from Peter Lynch. Thanks for reading. Wish you grow rich slowly and surely!

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