In 2021, the S&P 500 saw tremendous gains. As the world cautiously came out of quarantine and embraced the “new normal,” investors took advantage of the pandemic rebound.
While some investors’ predictions didn’t pan out, many fund managers’ bets paid off. And no one’s bets paid off quite as well as Morgan Stanley’s Dennis P. Lynch, Jr. (Marshall). According to the Wall Street Journal, Dennis Lynch managed some of the highest-returning funds of 2020.
Although most mutual funds are known for being strict and rigid, Dennis Lynch takes a unique approach that’s made him something of a rock star in the world of stock picking.
With Lynch’s investing strategy that’s based on research, trends, and old-fashioned paranoia, Lynch saw 273% gains in 2020 despite the uncertainty. Learn more about Dennis Lynch’s approach to stock picking and see how he became one of the best stock pickers in the US.
About Dennis P. Lynch, Jr. (Marshall)
Dennis Lynch, who also goes by Marshall Lynch, is the Head of Morgan Stanley Counterpoint Global, where he oversees $130 billion in assets as well as several equity funds.
Dennis Lynch grew up in Rumson, NJ, and earned his Bachelor of Arts in Government from Hamilton College in 1993. He also earned his Master of Business Administration in Finance from Columbia University Business School in 1998 with honors.
Dennis Lynch has been at Morgan Stanley since 1998. With decades of experience at the helm of Morgan Stanley, Dennis Lynch has generated impressive returns. In 2020, the Institutional Inception fund returned 150.6% and the Institutional Discovery fund posted 142.6% returns.
Dennis Lynch also has a AA rating with Citywire, was named as a Morningstar Fund Manager of the Year, and was listed as the number-one stock picker in the US in 2020 by the Wall Street Journal.
How Dennis Lynch became America’s top stock picker
Every fund manager has a different approach. And as one of the best-performing stock managers of 2020 (and likely 2021), Dennis Lynch is no different. However, he routinely finds himself in the Wall Street Journal’s Winners’ Circle because of his contrarian approach to investments.
Learn how Dennis Lynch pursues disruptors and innovators—and how his approach reaps dividends.
- Diversifying and broadening categories
The first distinguishing factor in Dennis Lynch’s approach is diversity. That’s always a good thing in investing, but because of the COVID-19 pandemic, Lynch wanted to hedge his bets more than usual.
Upheaval is the name of the game going forward, so Lynch says broadening the scope of investments is critical. For example, his funds used to have around 30 investments but now might have up to 60.
- Targeting lesser-known disruptors
Today’s investing environment is tricky, even for experienced stock pickers. That’s why Dennis Lynch prefers to go after lesser-known disruptors who have the potential to change entire industries.
Dennis Lynch isn’t a fan of the hype around stocks like Tesla. Although he did own some Tesla stock for three years, he doesn’t think the company will be able to deliver on its pie-in-the-sky promises.
Because stocks like Tesla are likely overplayed, Dennis Lynch looks at smaller companies that have room for growth. After all, a $2 trillion market cap means a lot can go wrong with a stock—including regulation.
Instead of betting solely on big names like Apple and Amazon, Lynch goes after alternatives to the big players. For example, Lynch is betting big on Shopify as an alternative for Amazon: since its stock increased by 106% over 12 months, Lynch’s Morgan Stanley funds benefited tremendously from this stock alone.
Lynch also invested in Utz Brands Inc., a snack company. It started as a small, family-owned company, but with 99 years of experience under the brand’s belt, Lynch believes betting on the little guys will pay off better than big-name stocks.
- Long-term trends backed by research
Going after disruptors doesn’t mean throwing caution to the wind. Dennis Lynch takes a measured approach that’s both open-minded and cautious. With the support of his research team, Lynch can look at the long-term potential of the stocks he picks.
Instead of getting too excited about a trend and allowing the excitement to cloud your judgment, Lynch recommends researching to make sure an investment will last beyond the initial hype.
Instead of looking at specific niches or industries, Lynch’s team looks at how persistent a trend truly is. Instead of going all-in on big trends like cryptocurrency (although Lynch is clearly a crypto fan), Lynch’s team isn’t married to one trend. As long as it’s disruptive and has the potential to stick around, his team considers it as a possible investment.
- 10-year paranoia
While some people can make it rich with day-trading, Dennis Lynch always takes a longer-term approach to his investments. His team looks at the stock performance at a 5-year and 10-year level. So, if a company didn’t do well because of the pandemic, Lynch isn’t particularly worried. As long as the company continues to hit the milestones that are necessary to reach it’s 5- and 10-year benchmarks, he keeps them in his portfolio. And if they don’t hit the mark, Lynch drops the stock.
He also believes a healthy dose of paranoia helps him pick better stocks. Dennis Lynch goes after disruptors, but he’s worried about other disruptors coming in and changing the industry from under his nose.
In fact, that’s why he’s such a big fan of Bitcoin. Lynch isn’t sure if the dollar will be the future of the economy, so he has a speculative interest in crypto. Will his predictions come true? It’s hard to tell, but for Lynch, investing with a long-term approach minimizes the potential for disruption.
- Betting on the pandemic market
Who could have anticipated the tremendous changes that would come with the COVID-19 pandemic? Dennis Lynch was one of the few investors whose bets on the pandemic market reaped serious dividends.
Lynch invested in Zoom during its IPO—a wise investment that paid off as the world turned to Zoom for connection during the pandemic. With investments in Square, Spotify, Twilio, and others, Dennis Lynch’s portfolio benefited from the push towards:
# Remote work
# Streaming entertainment
Thanks in large part to the pandemic, Lynch’s bet on the switch to remote-first living paid off more quickly than he realized it would. He knew these changes would happen eventually, but the pandemic significantly accelerated their growth.
Benefiting from disruption
Some people say Dennis Lynch is a genius stock-picker, but if you ask him, it all comes down to looking at the data. A little paranoia and a long-term approach help, too.
While the pandemic caused the stock market to do some crazy things, stock pickers like Lynch were able to use the pandemic rebound to see incredible returns. It likely isn’t a one-off success, either: Lynch’s Inception fund generated 140% one-year returns in 2021, putting him in the running for the WSJ’s 2021 Winners’ Circle yet again.
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