Warren Buffett vs Peter Lynch

Warren Buffett

Own a few businesses with durable advantages, understood deeply.

Examine as many companies as possible and buy the ones whose story is clear.

Warren Buffett

Risk is permanent loss, avoided by only buying what he can judge.

Risk is owning something whose story you cannot state in two sentences.

Warren Buffett

Discounted future cash, applied where economics are predictable.

Earnings growth measured against the multiple being paid.

Warren Buffett

Very concentrated, with individual positions running to tens of billions.

Extremely broad, at times more than a thousand holdings.

Warren Buffett

Protection against not knowing what you are doing.

A by-product of covering a very large number of companies.

Warren Buffett

Not attempted. Cash is held until a price appears.

Not attempted, and forecasting the economy is treated as wasted effort.

Warren Buffett

Deliberately absent from decisions.

Deliberately absent, and openly derided.

Warren Buffett

• Ran Buffett Partnership Ltd from 1956 and closed it in 1969 by choice, returning capital because he could no longer find opportunities he understood. Voluntarily shutting a successful fund rather than lowering the standard is rare in the industry, and it established the discipline his later record depended on.
• Bought National Indemnity in 1967, which mattered far more than its size suggested. Insurance premiums are collected before claims are paid, and that pool of money gave Berkshire investable capital no lender could withdraw, turning a stock-picking vehicle into a permanent-capital compounding machine.
• Acquired See's Candies in 1972 at a price well above its book value. It broke the Graham rule he had trained on and worked anyway, which is why he credits it with converting him from buying cheap companies to paying fair prices for durable ones.

• Ran Fidelity's Magellan Fund from 1977 to 1990, taking it from a small vehicle closed to new money to the largest mutual fund in the United States. The record it produced over those thirteen years is among the most studied in the industry, and it was built on company research rather than on any macroeconomic call.
• Visited companies and spoke to management on a scale almost no other manager attempted, at times holding well over a thousand positions. The breadth was the strategy: examining far more businesses than a conventional manager gave him more chances of finding the few that were obviously mispriced.
• Wrote One Up on Wall Street in 1989, which reached a readership investment books had never touched. It mattered because it argued, credibly and from a public record, that a non-professional could research a company, and it changed who believed stock analysis was available to them.

Warren Buffett

• Technology is the longest-running charge. Critics argued that avoiding an entire sector for decades was not discipline but a refusal to learn, and that the circle of competence had become a justification for standing still. Supporters replied that he sat out the late-1990s boom and therefore also the bust that followed, and that declining to value what you cannot value is the method working. What actually happened complicates both readings: Berkshire eventually made Apple its largest holding, which critics treat as an admission and supporters treat as the circle widening on evidence rather than on enthusiasm.
• Scale is the criticism he makes himself. Critics point out that a company of Berkshire's size cannot buy anything small enough to matter, so the opportunity set has narrowed to a handful of very large deals. Supporters answer that permanent capital and a reputation that brings deals to the door are advantages nobody else has. The record suggests the critics have the better of it: Berkshire's results have moved steadily closer to the broad market as it has grown, and Buffett has told shareholders directly not to expect the early rates again.
• Whether the method transfers is genuinely contested. Critics argue the record rests on insurance float, permanent capital and preferential terms in private deals, none of which an individual can obtain, so studying him teaches habits that cannot be executed. Supporters distinguish the structure from the principles and note that the reasoning about business quality and price survives without the balance sheet. History gives a mixed verdict: investors who took the principles have generally done better than those who tried to replicate the machinery.

• His most famous phrase has done real damage. Critics argue that invest in what you know is routinely taken as permission to buy a company because you like its product, which skips the research the phrase was meant to introduce. Supporters point out that Lynch spent years saying exactly this and devoted whole chapters to the work that follows the observation. History is unkind to both: the slogan spread and the chapters did not, which suggests a message this easy to misread carries some responsibility for the misreading.
• The era did a great deal of the work. Critics note that 1977 to 1990 was an exceptional stretch for American equities and especially for the smaller companies he favoured, and that a strategy tested only in a rising market has not really been tested. Supporters answer that he also navigated the 1987 crash without abandoning the approach. What can be said is that no comparable manager has reproduced the record since, which points at conditions as much as at method.
• Investors in the fund did much worse than the fund. Fidelity's own later analysis found that the average Magellan investor earned far less than the fund reported, because money arrived after good years and left after bad ones. Supporters observe that this is a fact about investor behaviour rather than about Lynch. Critics reply that a manager who attracts money he cannot stop people mistiming is producing a return most of his customers will never see, which is a real limitation on what the record demonstrates.

Warren Buffett

Investors who prefer to know a small number of businesses thoroughly and who are comfortable doing nothing for long stretches.

Investors who enjoy the search itself, who will read widely across many companies, and who accept that most holdings will be unremarkable.