Speaker 1: But if you didn't understand the company, if you were just buying on the fact that stock had gone from 26 to 16, and then it got to 10, what would you do when it went to 9? What would you do when it went to 8? What would you do when it went to 7? This is the problem that people have, is they sell stocks because they didn't know why they bought it, then it went down and they don't know what to do now. You flip a coin, you walk around the block, you know, what do you do?

Speaker 2: Today, we are learning from one of the greatest investors in history. Peter Lynch was a legendary mutual fund manager at Fidelity Magellan Fund. He achieved a 29% annual return, absolutely crushing the stock market over 13 consecutive years. During that period, he managed to grow the fund's size from $18 million to $14 billion. Afterwards, he retired early at 46 years old. And now, Mr. Lynch is sharing with us how to make millions during a stock market crash, a very important thing to know in today's economic conditions.

Speaker 1: You should study history, and history is the important thing you learn from. What you learn from history is the market goes down. It goes down a lot. The math is simple. There's been 93 years, a century. This is easy to do. The market's had 50 declines of 10% or more. So 50 declines in 93 years, about once every two years, the market falls 10%. We call that a correction. That means, that's a euphemism for losing a lot of money rapidly, but we call it a correction. And so 50 declines in 93 years, about once every two years, the market falls 10%. Of those 50 declines, 15 have been 25% or more. That's known as a bear market. We've had 15 declines in 93 years. So every six years, the market's going to have a 25% decline. That's all you need to know. You need to know the market's going to go down sometime. If you're not ready for that, you shouldn't own stocks. And it's good when it happens. If you like a stock at 14 and it goes to six, that's great. You understand the company, you look at the balance sheet, they're doing fine. You're hoping to get to 22 with it. 14 to 22 is terrific. Six to 22 is exceptional. So you take advantage of these declines. They're going to happen. No one knows when they're going to happen. It would be very, people tell you about it after the fact that they predicted it, but they predicted it 53 times. And so you can take advantage of the volatility in the market if you understand what you own. One of the things I find a rule, a couple of rules I want to throw out that I find useful, excuse me, is a lot of times people buy on the basis, the stock has gone down this much. You know, how much further can you go down? I remember when Polaroid went from $130 to $100, people said, here's this great company, great record. Whatever gets below $100, you know, just buy every share, you know, and it did get below $100. A lot of people bought on that basis saying, look, it's gone from $135 to $100, it's now $95, what a buy. Within a year, it was $18. And this is a company with no debt. I mean, it was just so overpriced, it went down. I did the same thing in my, I think my first or second year at Fidelity. Kaiser Industries had gone from $26 this year to $16. I said, how much lower can it go? It's $16. So I think we bought one of the biggest blocks ever on the American Stock Exchange at Kaiser Industries at $14. I said, you know, it's gone from $26 to $16, how much lower can it go? Well, at $10, I called my mother and said, mom, you got to look at this Kaiser Industries. I mean, how much lower can it go? It's gone from $26 to $10. Well, it went to $6, it went to $5, it went to $4, it went to $3. And now, unfortunately, this happened rapidly. I would probably be still caddying or working at the stop and shop, but it happened fast. It was able to, it was compressed. And at $3, I figured out, you know, there's something very wrong here because Kaiser Industries owns 40% of Kaiser Steel, they own 40% of Kaiser Aluminum, they own 32% of Kaiser Cement, they own Kaiser Broadcasting, they own Kaiser Sand and Gravel, Kaiser Engineers, they own Jeep, they own business after business, and they had no debt. Now, I learned this very early, this might be a breakthrough for some people. It's very hard to go bankrupt if you don't have any debt. It's tricky, some people can approach that, it's a real achievement, but they had no debt, and the whole company at $3 was selling at about $75 million. At that point, it was equal to buying one Boeing 747. I said, there's something wrong with this company selling for $75 million. I was a little premature at $16, but I said, everything's fine, and eventually this will work out. And what they did is they gave away all their shares to their shareholders. They passed out shares in Kaiser Cement, they passed out shares in Kaiser Aluminum, they passed out their public shares in Kaiser Steel, they sold all the other businesses, and you get about $50 a share. But if you didn't understand the company, if you were just buying on the fact the stock had gone from $26 to $16, and then it got to $10, what would you do when it went to $9? What would you do when it went to $8? What would you do when it went to $7? This is the problem that people have, is they sell stocks because they didn't know why they bought it, then it went down, and they don't know what to do now. You flip a coin, you walk around the block, you know, what do you do?

Speaker 3: Are you concerned about the volatility in the financial markets today? Do you think something needs to be done to reduce it?

Speaker 1: I love volatility. I remember when 1972, the market went down dramatically, and Taco Bell went from $14 to $1. They had no debt, they never had a restaurant close, and I started buying at $7, but I kept on to it, and it went to $1. It was the largest position in Magellan in 1978, when it was bought out by $42 by Pepsi-Cola, and I think it would have gone to $400 if they didn't buy it out. I think volatility is terrific. I think these callers are very important. I don't think the market going up 80 points one day and down 80 the next is a good thing for the public. I think that's not a very good thing. But I think all these callers and all these other things, to keep the volatility down each day is important. But the market's going to go up and down. Human nature hasn't changed a lot in 25,000 years. And some event will come out of left field, and the market will go down, or the market will go up. So volatility will occur, and markets will continue to have these ups and downs. I think that's a great opportunity if people can understand what they own. If they don't understand what they own, they can own mutual funds, try and figure out what mutual funds they own, and keep adding to it. Basically, corporate profits have grown about 8% a year, historically. So corporate profits double about every nine years. The stock market ought to double about every nine years. So I think the next market's about 3,800 today, 3,700. I'm pretty convinced the next 3,800 points will be up. It won't be down. The next 500 points, the next 600 points, I don't know which way they'll go. So the market ought to double in the next eight or nine years. It ought to double again in the eight or nine years after that. Because profits will go up 8% a year, and stocks will fall. That's all there is to it. October's always been a special month. I remember in 1987, I was very convinced the market was not in trouble, and I didn't worry about things. Carol and I had planned this great golf vacation to Ireland. We were going to visit one course, and set up a little house, and visit another. Go all along the west coast of Ireland and play golf. We left on a Thursday night, and the market went down 55 points that day, which was not too good. The next day, we got to Ireland. Because of the time difference, we completed our day. I got back to the hotel, and I called in. The market had gone down 112 on Friday. I said to Carol, I think if the market goes down on Monday, we're going to have to go back. So we stayed there for the weekend. On Monday, the market went down 508 points, and my fund went from 12 billion to 8 billion. That gets your attention in two working days. I said, at the end of this week, I'd have no fund. Now, there wasn't a lot I could do. I don't know where I was on Monday, because the market didn't open. By 12 o'clock in Ireland, it was still 7 o'clock in New York. We did spend that day, and we played a round of golf in the morning. Then we went somewhere, and watched the market deteriorate. I did come back. There wasn't nothing I could do about it. I think my shareholders, they called up, and they said, what's Lynch doing? They said, well, he's on the sixth hole. He's even par up to now, but he's in a trap. This could be a triple bogey here. This could be a big inning. I don't think that's exactly what they wanted to hear, so I could do something about this damn thing. So I came back home and suffered with everybody else. Fortunately, I was very consistent. When I ran Magellan on 13 years, the market went down nine times. Every time the market went down, Magellan went down. I was nine for nine. It's very important. This is another one of these numbers you ought to write down. If you put $1,000 in a stock, all you can lose is $1,000. I've done that several times. But if you're right, you can make $5,000, $10,000, $20,000. In this business, you don't have to be right one out of two times. You can be right one out of four. The times you're right, you know the company's doing well. You know they're doing a great job, and you add to it. Or at least you don't sell it, which is a terrible tragedy. You can make more money on the upside. I just wrote those out, and I will now flip a coin to tell you where the market will go to $4,000. This year or next year. Heads means it goes up. It's a two-headed coin. The market will go up in the next year. That's all I ever know about the stock market. You'll be very pleased in 10, 20, 30 years. Stocks will beat the hell out of money markets. They can beat the hell out of bonds. It doesn't matter whether you're investing for a 4-year-old, a 14-year-old, or a 74-year-old. You have to say, what am I going to do when the market goes down? Because I've had audiences like this, larger audiences. And I'll say, how many people in the room are short-term investors? I've never had anybody ever raise their hand. I mean, everybody in the world is a long-term investor. Until the market goes down.