• / Free eNewsletters & Magazine
  • / My Account
Home>CLS: Know What You Own and Why

Related Content

  1. Videos
  2. Articles
  1. Fidelity Focuses on Passive, Fees in First Half of 2016

    Morningstar's Katie Reichart takes a look at Fidelity's performance so far this year, plus some ratings changes and lowered fees.

  2. Which 'Blue-Chip' Fund Deals a Better Hand?

    Morningstar's Katie Reichart compares the Blue Chip Growth funds offered by T. Rowe Price and Fidelity .

  3. How Fidelity Funds Stacked Up in 2013

    Fidelity's growth-leaning equity funds and more conservative bond funds made for a strong year for the fund firm, says Morningstar analyst Katie Reichart.

  4. Fidelity Delving Into Private Companies

    In an attempt to see a longer runway for growth, some of the group's largest funds, including widely held Fidelity Contrafund, are investing in private companies.

CLS: Know What You Own and Why


“Know what you own, and know why you own it.” —Peter Lynch

Many years ago, I worked in Boston at Fidelity Investments in its investment management division, Fidelity Management and Research (FMRCo). It was an incredible experience. I worked with extremely talented people and extraordinary resources within a culture dedicated to performance and investment excellence.

Fidelity was known for having some of the best money managers in the industry at that time, though my tenure began just after the famous Portfolio Manager Peter Lynch’s run as one of the most storied mutual fund managers of all time. Though I did see him around, including in the town where I lived (Marblehead, MA), his official capacity as a portfolio manager of the Magellan Fund was over. Nonetheless, his influence on the firm’s culture was still strong. At Fidelity, we believed “the one who turned over the most rocks,” meaning the one who does more research than the competition, would generate better performance. It was a hardworking, extremely competitive culture.

The quote above is perhaps one of Lynch’s more famous ones. It primarily speaks to the value of seeking high-quality, consistent investment research. This is something many investors simply don’t do when they select securities and, perhaps more importantly, when they build and manage portfolios. If you’re not doing the proper research, you shouldn’t be making investment decisions. Managing portfolios is about managing risks.

While Lynch’s quote refers to picking individual securities, we at CLS believe knowing what you own is more about understanding the risks contained within a portfolio, making sure those risks are appropriate given the portfolio’s mandate, and ensuring the portfolio takes the risks that are intended. At CLS, the first promise of Risk Budgeting is making sure we deliver on managing risks to investor expectations.

Lynch’s quote also gets to the point of knowing the story about what you own and why. In investing, stories are important, but they can also be seductive and dangerous. They’re important because they may help investors understand why an investment makes sense. They’re dangerous because so many investors end up building portfolios haphazardly because they’re chasing stories and not managing risks. Investors might know the stories of their individual holdings, but they have no idea what they own when it comes to portfolio risks.



©2017 Morningstar Advisor. All right reserved.