Peter Lynch on Inflation

The beginning of the bull market in 1982 and the environment. Were you surprised? 1982 was a very scary period for this country. We've had nine recessions since World War II. This was the worst. 14 percent inflation. We had a 20 percent prime rate, 15 percent long governments. It was ugly. And the economy was really much in a free-fall and people were really worried, "Is this it? Has the American economy had it? Are we going to be able to control inflation?" I mean there was a lot of very uncertain times. You had to say to yourself, "I believe it in. I believe in stocks. I believe in companies. I believe they can control this. And this is an anomaly. Double-digit inflation is rare thing. Doesn't happen very often. And, in fact, one of my shareholders wrote me and said, "Do you realize that over half the companies in your portfolio are losing money right now?" I looked up, he was right, or she was right. But I was ready. I mean I said, "These companies are going to do well once the economy comes back. We've got out of every other recession. I don't see why we won't come out of this one." And it came out and once we came back, the market went north.

Nobody told you it was coming. It's lovely to know when there's recession. I don't remember anybody predicting 1982 we're going to have 14 percent inflation, 12 percent unemployment, a 20 percent prime rate, you know, the worst recession since the Depression. I don't remember any of that being predicted. It just happened. It was there. It was ugly. And I don't remember anybody telling me about it. So I don't worry about any of that stuff. I've always said if you spend 13 minutes a year on economics, you've wasted 10 minutes.

The fact of the matter is, in the America that we live in, there are a lot of people who feel they have no choice, that they have to be in the market. What do those people do? Well, if people don't have the stomach, they really don't have it, the volatility's too much for them with the stock market, they can avoid it. They could buy money market funds and they'd get a little bit better than inflation. They will not get, in my opinion, the same return the next 20 years, the next 30 years they would get by buying stocks. That doesn't sound like much, but over the long period of time Treasury Bills and money markets have yielded a little bit higher than inflation, bonds have yielded five or six percent, and stocks have yielded a total of 11. The differences are massive over 30 years, but that's not a bad return to get a positive return. If you're worried, it's better than losing money.

[15:21] And no one can predict the economy. I know a lot of people in this room were around in 1981 and 1982 when we had a 20% prime rate with double-digit inflation, double-digit unemployment. I don’t remember anybody telling me in 1981 about it. I didn’t read, I study all this stuff, I don’t remember anybody telling me we’d have the worst recession since the Depression. So, what I’m trying to tell you, it would be useful to know what the stock market will do. It would be terrific to know the Dow Jones average a year from now would be X, that we’re going have a full-scale recession, or to know interest rates will be 12%. That’s useful stuff. You never know it, though. You just don’t get to learn it. So, I’ve always said if you spend 14 minutes a year on economics, you’ve wasted 12 minutes and I really believe that.