Lynch ran Fidelity's Magellan Fund to roughly 29% a year for thirteen years by refusing to choose between growth and value. His trick was a single ratio that ties the two together, and it is the master metric of SageRanks's Lynch mode: the PEG.
Between 1977 and 1990, Lynch turned Magellan into the best-performing mutual fund in the world. His books, One Up on Wall Street and Beating the Street, argued that ordinary investors have a real edge: they notice great products and rising brands in daily life long before Wall Street catches up. His famous advice, "invest in what you know," was never a licence to buy blindly. It was an invitation to start from what you understand and then do the homework.
Lynch's insight was that a price-to-earnings ratio means nothing on its own. A company on a P/E of 20 is cheap if it grows earnings at 20% a year, and expensive if it grows at 10%. The PEG ratio makes that explicit by dividing the P/E by the growth rate.
"The P/E ratio of any company that's fairly priced will equal its growth rate."
A PEG around 1.0 is fair value, below 1.0 is a potential bargain, and much above it means you are paying for growth that has to show up perfectly just to justify today's price. It is the cleanest way to buy growth without overpaying for it.
Lynch refused to treat all stocks alike. He sorted them into buckets and judged each on its own terms:
Lynch mode is at its best on profitable growers whose price has not yet caught up with their growth. It struggles exactly where PEG struggles. The ratio needs a reliable earnings figure and a credible growth estimate, so it breaks down for loss-makers, for banks and for cyclicals whose growth rate is meaningless mid-cycle. And "invest in what you know" is often misquoted as an excuse to skip the research that Lynch himself did relentlessly.
Lynch mode makes PEG its heaviest weight, backs it with revenue growth and return on equity, and adds analyst signals as a lighter confirmation. It flags any company with a PEG of 1.5 or more, and a company with negative or missing growth fails the test outright, because a growth ratio needs growth to mean anything. As always the ranking is relative within an index. The full weighting is on the methodology page.
See which companies pass Lynch's screen today →