Worldwide Financial Planning

This week brought news of the impending IPO of Elon Musk’s SpaceX. If it achieves its rumoured valuation of $1.75tn, it would be the seventh largest US listed company, worth more than Meta, Berkshire Hathaway and Walmart.

A fund should have a job. It may be there to give broad global equity exposure, provide UK dividend income, diversify away from shares through bonds, add smaller-company risk, or act as a specialist satellite holding. Fine. But if neither investor nor adviser can explain that job in plain English, the fund has already failed the first Lynch test.

I have always liked Peter Lynch’s line “there is always something to worry about”. It should be stamped on the front of every fund factsheet, preferably in red ink and next to the glossy one-year performance chart.

The biggest risk most investors take is not market risk. It is concentration risk. That is the risk of having too much exposure to one company, one sector, or one country without realising it.

If you cannot explain a business simply, you probably do not understand it well enough to own it when life gets noisy. He had what amounted to a crayon test - if the investment case could not be set out in plain English, quickly, without jargon, then the problem was not the company, it was your understanding.

Peter Lynch's track record at Magellan is, by virtually any measure, one of the most remarkable in the history of active fund management.