US Economy: an Upbeat View
INTERVIEW: PETER LYNCH
WHEN Peter Lynch looks across the United States, he sees thousands of stories the press needs to tell. They are stories about "the new businesses that are creating jobs" for Americans.
"In the 1980s, 3 million jobs were lost from the big companies, and probably another 3 [million] will be lost in this decade," he grants. It's sad, Mr. Lynch admits. "But have you heard about the 21 million jobs created by small and medium-sized companies in the 1980s?" he asks in a polite but pointed way.
"No," he says, answering his own question, "you hear only about the job cuts." And this information pattern continues in the 1990s, he says.
These new companies, however, are at the heart of how the US economic system works in a world of intensified competition, Lynch says, and "we should be told more about them."
If it were not for these companies, he says, "the US today would have between 10 and 15 percent unemployment."
Lynch became legendary among stock pickers during the years he led Fidelity Magellan mutual fund, the flagship of Fidelity Investments, located in Boston.
Magellan's gains were stunning: $1,000 invested when he began as manager in 1977 would have grown in value to $28,000 when he "retired" in May 1990. Since then he has co-authored, with John Rothchild, a financial columnist for Time magazine, three books on investing.
He still serves on Fidelity's board, working out of a small eighth-floor office across the street from Massachusetts's historic Old State House in Boston. Atop one of his filing cabinets, in front of a small model of the New York Stock Exchange, stand two toy bulls. Photos of his family cover the walls.
In addition to writing, Lynch devotes time to charity and also advises his alma mater, Boston College, on its investments.
His latest book, published in January, is "Learn to Earn: A Beginner's Guide to the Basics of Investing and Business" (Fireside).
The subtitle sums up the intent of the book, in which Lynch and Mr. Rothchild explain modern US economics and business in plentiful detail.
Starting in junior high school, he says, American youngsters should be taught investing and its link to business - but they are not, he says. His book could become a text for such teaching, for it links the story of investing to the story of how modern US capitalism works.
"I want people to see that when they buy a stock, they are really buying a part of a business, and they should work as hard at understanding a business they invest in as they work on evaluating a house they buy," Lynch says.
That's especially so in today's economy, he says, since "your retirement is now up to you." Fewer firms have pension plans now, he says, and more people find they are handed tens of thousands of dollars in savings from curtailed pension plans and are told that they are responsible for investing the money, whether in mutual funds, stocks, or other instruments. "Many will simply turn this money over to a financial planner and even sign papers giving the planners power to make investments, but the owners of the money often won't take time to learn the simple basics of investing for themselves."
Our culture must learn that business is not evil, he adds. "Our companies have done a brilliant job. They did not create the global competitive scene. They are much more creative than we think they are."
Lynch identifies three major categories of businesses in the US today: (1) the small and medium companies that are adding jobs, (2) the large companies - "often the best in the world now" - that have become more efficient but have shed workers, and (3) ones run by the "few people" who buy companies just to dismantle them and make money on the parts - a practice he dislikes.
The US has become the most competitive nation in the world, he says, and "no economy even comes close" in terms of job creation. America has learned to regrow industries and businesses as old ones "peak out," he says. "We have been reengineering and restructuring since the early 1980s, and if this [transition process] were a baseball game, we would be in the seventh or eighth inning."
Europe, he says, has hardly begun, and with 10 percent unemployment there now, things "will be tough in Europe for years."
Our economic era demands good education, Lynch says, and the US needs "to end the problem of kids dropping out of school," or these "unfortunate youngsters won't get jobs." Korea and Taiwan "don't have dropouts." If Americans don't stay in school, they will encourage US firms to build their factories overseas where educated workers are.
Business also can "do more to train and retrain workers," he says.
His investment tips in a nutshell: If you have $20,000 or $40,000 that you will need in a couple of years, don't put it in the stock market. The market will go down and up over the short term. If you have time to leave your money in the market, invest in good companies by learning how they will grow their profits; earnings growth is what makes their share prices go up.
Today's market could decline "10 or 20 percent," but it is basically sound because profits have gone up so much in the last two years, he says. In general, allow yourself as much as 20 years to realize the historic average market growth of 10 or 11 percent a year.
Once invested, he says, stay in the market, because gains come in spurts that no one can predict.