Now Lynch’s gold-plated name has been linked to allegations of improprieties and poor management at W R. Grace and Morrison Knudsen-the only two Corporate boards he sits on. “It’s incomprehensible to me that an analyst or a director would miss these problems at Grace and Morrison Knudsen,” says Jim Rogers, a former hedge fund manager who participates with Lynch in Barron’s annual investment round table.
What’s happened to Lynch? Some longtime friends and associates are puzzled. He doesn’t need the money, they say. Lynch may simply be taking on bigger challenges than he anticipated and lending his name too freely. Or he may be trying to recapture the spotlight he lost when he left Magellan. Either way, the endorsements, ads and directorships are beginning to shade the impeccable reputation he built at Magellan. Lynch says he has chosen his outside activities carefully and doesn’t yearn for publicity. “I could do many more ads than I do. I’m much less in the limelight than I could be,” he says. But for Lynch fans, the board woes and the 800 numbers are like watching Michael Jordan lose a pickup game of basketball. “It’s very embarrassing,” says Tobias Levkovich, an analyst and Lynch watcher at Smith Barney.
The new Lynch is raising eyebrows because the old one seemed infallible for so long. After attending Boston College on a scholarship awarded to golf caddies, he went to Wharton and was hired by Fidelity in 1969. He took over Magellan in 1977 and soon began to string together year after year of extraordinary returns. The track record astonished everyone. An investor who plunked down $10,000 at Lynch’s debut could have taken out $280,000 when he left in 1990. Small investors stampeded into the fund. Magellan’s explosion woke up the industry: stars like Lynch could summon an avalanche of cash. By working seven days a week and visiting hundreds of companies a year, Lynch kept Magellan on top, but the toll was crushing. He finally quit to spend more time with his family and work for charities.
No one can doubt that Lynch’s heart is in the right place. A devout Roman Catholic, Lynch is a trustee or director of 17 charities. He knocks on doors to raise money for The Inner City Scholarship fund and flies on relief missions for AmeriCares, which provides medical supplies to the needy. Statistics about his charities roll off his tongue as readily as earnings estimates used to. “Everybody knows him as an authority on Wall Street, but his own priorities are his family, his church and his school, says James McIntyre, senior vice president at Boston College.
Yet now Lynch is becoming known as a pitchman, too. His ads for Fidelity products make sense. He’s vice chairman of the firm, and no marketing department would mothball a brand name like Lynch’s. His television ads for Worth, for which he writes a monthly column, are more surprising. The 800 number stretched across the screen and the wooden script fit Lynch about as well as a Thighmaster commercial. It’s hard to believe that Lynch turns to any magazine for investment advice. And viewers aren’t told that Worth is owned by Fidelity, which might be one reason why Lynch “picks” the magazine. Lynch’s likeness is also stamped, like Ed McMahon’s, on envelopes promoting Worth’s “Instant Riches” Sweepstakes. Lynch says his connection to Worth has nothing to do with Fidelity. “I work hard at Worth,” he explains. “I think it’s a worthwhile magazine.”
Lynch’s reputation is also getting a bit frayed on the bookshelf. The now familiar message of empowerment in his best sellers, “One Up on Wall Street” and “Beating the Street,” is: you can get better investment results than a professional investor. How? By watching what your kids and neighbors buy. The idea sold books around the world. But it’s a theme that now strikes many as somewhat misleading. Lynch has lived and breathed stocks for 26 years. To suggest that you can do as well by walking around the mall is oversimplifying. According to George Noble, a Boston hedge fund manager who assisted Lynch with Magellan, Lynch is “an incredibly thorough analyst and fabulous at distilling the crucial factors in an investment decision.” Most of us aren’t. And what happens to the plucky small investor when consumer stocks fall out of favor? He gets steamrollered. “How the hell is the average investor supposed to understand a steel company?” asks a former Fidelity manager.
More troubling questions surround Lynch’s board work at MK and Grace. At MK, company spokesmen point out that the complex business of building rail cars and digging tunnels is wildly unpredictable, and that no one, not even the directors, could have known the company would lose money on its projects until they were actually complete. But Smith Barney’s Levkovich has been raising red flags for the last year. “If someone had done their due diligence they would have figured out that the company was headed for trouble,” he says. At Grace, Lynch and other directors are under fire not for business problems, but over compensation arrangements for a CEO allegedly charged with sexual harassment.
Why has Lynch cast himself in these new roles? He doesn’t take any money for his column in Worth, which is coauthored by John Rothchild. The proceeds from his books go to charities. He turned down the chance to earn $15 million a year by starting a Lynch fund when he quit Magellan in 1990. His stake in Fidelity, believed to be 5 percent, is worth some $300 million, according to former fund managers.
Lynch stays in the public eye, say former colleagues, because he loves the attention. Fidelity staffers used to marvel at how often he agreed to be interviewed. The invitations to lend his name and face to financial products are all the more flattering now that Lynch plays a peripheral role in Fidelity’s investment arena. Though Lynch dedicates two days a week to one-on-one “training” of analysts and Fidelity board business, people close to the Boston firm say he’s no longer viewed as a kingpin by fund managers. “Lynch needs the ego satiation. That’s why he does the books, the boards and all that nonsense,” says a former associate.
Lynch is bewildered by the criticism. (He can’t talk about Grace and MK for legal reasons.) “I could do four television shows a week, 10 radio spots a day,” he says. “I got offers to sit on 50 boards when I left Magellan. I only accept a small fraction of the invitations that are made and only the ones I believe in.” He strongly supports the philosophy espoused in his books (he and Rothchild are now writing a third one for young adults) that the small investor is perfectly capable of investing intelligently. “The media has convinced the public that the stock market is like a big casino, so people treat it like one,” he explains. “I’m saying that if they’re going to buy stocks, they’ll do better if they know about the industry, read the annual report and look at the financial statements.”
As Michael Jordan discovered in baseball, second acts aren’t easy. The downside of being deified for so long is that it’s brutal when you fall off the pedestal. For someone as smart as Lynch, the tumble’s not likely to be fatal. Perhaps just an incentive to make sure the next act pays better dividends.
