Interesting article on Buffett vs. Lynch

http://blog.alphaarchitect.com/2017/02/08/greatest-stock-pic…

The article argues that in several significant ways, Peter Lynch outperformed Warren Buffett. I think that in quite a few ways, though, it’s like comparing apples vs. carrots.

Of the two, Lynch’s work is much more similar to what Saul has been doing: picking stocks. (Buffett is running a complex company that partly depends on picking stocks, but it also has large ongoing operations, including a large float generated by collecting insurance premiums in advance. Lynch didn’t have any float, and he wasn’t managing any of the companies he held.) One surprising factoid: at the time he wrote “One Up on Wall Street,” Lynch was holding about 1400 stocks!

6 Likes

I forgot to add a question - would it have been like the snake eating its tail if Lynch held shares of Berkshire Hathaway while BRK held shares of Fidelity Magellan? The former was much more likely than the latter. I doubt if BRK holds any mutual funds.

Actually Saul’s style is more closely related to Zweig’s style.

Andy

The article argues that in several significant ways, Peter Lynch outperformed Warren Buffett. I think that in quite a few ways, though, it’s like comparing apples vs. carrots.

I’ve studied the styles of both of them, apples vs. carrots indeed!

Buffett is running a complex company that partly depends on picking stocks, but it also has large ongoing operations, including a large float generated by collecting insurance premiums in advance.

That is an incomplete view of Buffett’s style. He didn’t start that way, he started as a fund manager and evolved into the conglomerate he runs. One important distinction is that by running a corporation instead of a fund, Buffett has fewer legal restrictions than Lynch had.

If we accept the apples vs. carrots metaphor the question is what can we pick from each for own use. I like Lynch’s stock picking style and Buffet’s money management style.

Denny Schlesinger

4 Likes

a few observations:
*Lynch held a lot of stocks but concentrated in the major holdings
("of the 900 in 1983, 700 were less than 10% of the portfolio) - pg 117 Beating
*he held the little positions cause he was restricted in how many shares he could hold and because a small company would often tell him things about a large company - pg 117 Beating
*he was in the world before Reg FD - there is a bit in the book about checking every industry group once a month - pg 93
*if he didn’t know about an industry, executives would explain it to him - pg 94 Beating
*he didn’t just buy domestic companies - he bot foreign as well - pg 128 Beating

there really is no compare between WEB and PL in my opinion - longevity is a huge difference (Lynch’s routine was so exhausting that he quit before it killed him - see John Train’s books on PL) but on the other hand running a mutual fund, which has fluctuating capital flows and restrictions related to diversification and share ownership, is far more difficult. Lynch mentioned that in his non-mutual fund separate accounts his performance was even higher (sorry, not sure where it saw this), but there is no substitute for running capital for +50 years and more.

I’m biased, but I think you can learn a ton from both, but One Up is a seamless and clear read, and Beating provides illustrative examples. It doesn’t get clearer than this, but you read both to increase your knowledge.

just an opinion

P.S. Buffett is a capital allocator - the operations are decentralized (he doesn’t take an active role in the companies until he is asked his opinion), so implying he is a money manager and not a stock picker is clearly incorrect. The end result that is Berkshire Hathaway is a $100 investment of his own money at the start of the partnership (it is reported he never added another dime of his own money) so he was a stock picker for the ages…though obviously BH itself has also grown in value based on some of the reasons you mention, but WEB could buy 100% of companies and not just part of them).

5 Likes

I think that if Buffett could buy enough companies outright, he would likely concentrate on that and not buy stocks except if required for insurance portfolios.

With either investor, especially in earlier years of their work, you’d probably be rich by buying what they bought. With Lynch, not so much the tiny holdings, but some of the bigger ones. If he didn’t have to, I suppose he wouldn’t have bought so many different stocks. That would be a massive headache to keep track of them. I think Lynch’s results would be almost identical buying dozens of stocks or fewer rather than hundreds.

I think both are interesting examples of how to invest well, and there’s plenty to learn from both.

1 Like