Peter Lynch was a rock-star investor.
During his thirteen years at the helm of Fidelity’s Magellan Fund, he racked up 29% annual returns.
To put that in perspective, a $50k investment during that time would have grown to $1.4 million.
How did he do it?
And more importantly, how can you copy him this Thanksgiving to become a rock-star investor yourself?
Follow The Kids
Lynch had a unique trick for uncovering investment opportunities.
As legend has it, he’d send his teenage daughter to the mall with some spending money. After seeing which stores she bought from, he’d analyze the stocks of those companies.
Makes sense: kids intuitively know what’s cool. They can perceive things about brands and products that the average financial analyst — a middle-aged guy, wedged into his Dockers and cubicle — glosses right over.
But the “Follow the Kids” strategy doesn’t just work for investing in publicly-traded stocks…
It also works for investing in startups…
Doing The Macarena
A few years ago, Facebook paid $2 billion for Oculus, a startup that made virtual-reality headsets.
Then Apple bought Beats, a startup that made headphones, for $3 billion.
Nowadays, the cool startup on the block is TikTok, which just about every major media, retail, or technology company — from Microsoft to Walmart to Oracle — has tried to buy or partner with.
In each of the above examples, and in many others just like them, you’ll see a common pattern:
A well-established, cash-rich company gets nervous that it’s missing the boat. It realizes that it doesn’t know how to appeal to the next generation. It’s still dancing a waltz — but meanwhile, it hears the cool kids are doing the Hustle nowadays… or is it the Floss, or the Macarena?
Fearing for its life, it goes on a shopping spree. M&A to the rescue!
Buying a Ticket to the Next Generation
There are many reasons bigger companies buy startups. For example:
- Startups give them access to top-notch management teams.
- Startups help them stave off potential competitors.
- And it’s faster to buy something than to build something.
But deals for companies like Oculus, Beats, or TikTok fit a different profile:
These startups get acquired because they can deliver a huge audience of young people!
Essentially, the old dinosaurs are buying a ticket to the next generation. They’re paying up for the chance to fight another day.
And for investors like us, the trick is getting into these startups before they’re acquired.
Bring in the Cool Kids
So tomorrow, as you’re sitting around during Thanksgiving, ask your kids or your grandkids what they think about the companies you’re considering investing in.
Ask your nieces and nephews, too.
If they think a startup is cool, that might be a very good sign.