Peter Lynch started as the head of the US-based Fidelity Magellan fund in 1977, where he managed to deliver 29% annualized returns for his clients over 13 years before retiring in 1990. To put this into perspective, every $1,000 invested into his fund in 1977 would have turned into $27,200 over his 13 year tenure.
In an interview with the Public Broadcasting Service (PBS) after he had retired from the Fidelity Magellan fund, the investing maestro had many thoughts to share that are very useful for the individual investor. To point out one of them, Lynch had this to say about the fear of “missing the boat” on big long term winners:
“Well, you’ve got plenty of time. You could have bought Wal-Mart ten years after it went public — Wal-Mart went public in 1970. You could have bought it ten years later and made 30 times your money. You still could have made 30 times your money because ten years after Wal-Mart went public they were only in 15 percent of the United States.”
“What goes up, must come down”?
As it turns out, we have similar occurrences in our local share market in Singapore too.
Take Dairy Farm International Holdings Ltd (SGX:D01) for instance. From 3 Jan 2000 to 31 December 2004, the company would have given a total return in excess of 270%.
To the new investor who started looking at the company at the end of 2004, it may be natural to think that Dairy Farm would be due for a big fall because its share price has run up so much in just four years. The new investor might even think that company’s best days are long gone. After all, what goes up, must come down, isn’t it?
As it turns out, the same investor who shunned Dairy Farm’s shares at the end of 2004 may be surprised to learn that the company has brought in another 520% in total returns from the start of 2005 up till yesterday’s close.
The key thing to note here is that when the investor had focused on the past performance of Dairy Farm’s share price alone back in 2004, he or she may have missed out on the addressable market ahead for it to grow into. With sales that had grown from US$3.96 billion in 2004 to US$10.36 billion in 2013, it’s clear (albeit on hindsight) that the company did have plenty of room to grow.
The beauty of a long-term view and a Foolish takeaway
If there is one more thing to appreciate about long-term investing, it would be that the Foolish investor does not need to be in a hurry to invest when it comes to a long term winner. Said another way, long term winners can compound returns over many years and even decades, and there will be many opportunities in that time to add such companies to your portfolio.
The key here is to keep doing what a Foolish investor should be doing. And that is to firstly focus on how the business behind the ticker has developed over the years and to keep an eye out for the addressable market ahead for the company. While there can never be any guarantee when it comes to the future, past business performance might just turn out to be one of the best indicators of returns ahead.
Stay tuned for more tips from the investing master!
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.