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Re: Why Hold Bonds?
Old 01-14-2007, 02:20 PM   #61
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Re: Why Hold Bonds?

The two failed funds were not run by Lynch, so I don't know what that has to do with his record (although the tax-loss carryover from them offset some of the tax consequences you mention).

I imagine that at least a few people actually owned the fund in a retirement account and avoided the tax problems.

As to the early returns being larger than the later returns, that's not exactly surprising. It is alot easier for a small fund to beat the market than a small one. Buffet's returns show the same issue. It doesn't do a large fund any good to find a drastically undervalued smallcap. It can't buy enough to matter.

I haven't claimed Peter Lynch is a genius. He could very well be the lucky monkey coin-flipper this board claims he was. That doesn't change the fact that anyone who held Magellan from the beginning of his tenure to the end got investment performance better than pretty much any other option available at the time.

It also doesn't change the fact that the people who held after he left got decidedly mediocre investment performance.

Originally Posted by rmark
"I call bull."

well maybe, the study was one I read some years ago - but note

Magellean was a private fund with 2 failed funds "disappeared" into it - kind of like Stalin airbrushing out the people he had imprisoned, so we have survivor bias from day one.

The early years had high returns, but few people were invested in Magellean - so its investors as a whole have lower than published returns on a dollar weighted basis.

It was actively managed, with unpublished transaction costs mostly hidden from investors.

That same active management triggered taxes for taxable accounts, further reducing the net return to investors.

None of this shows up in the return record, yet it costs investors real money.

Depending on how the story is reported, Mr. Lynch seems to have or have not beat the market from the investors point of view. Maybe its too close to call.


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Re: Why Hold Bonds?
Old 01-14-2007, 03:48 PM   #62
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Re: Why Hold Bonds?

BTW, i'm not claiming that Lynch is a moron. Just pointing out that if genius were a factor, we'd have a lot more funds run by geniuses that perform well consistently vs the market over long periods of time.

I mean, how hard can it be to beat a bucket of investments that has the worst along with the best? How smart do you have to be to at least fork the really obviously crappy performers off the plate and beat the index?

Yet, the results we have over the long haul is that even presuming lucky coin flipping odds, we dont have enough successful long term winning active managers to account for just good luck. Which sort of means that putting your hands on the thing produces worse results than luck, with coin flipping monkeys still not doing as well as the total market...over time.

Which I think means that market movements are simply unpredictable and resist even highly intelligent efforts to improve returns. Not just resist them, but turning such efforts into manure.

So Lynch might have been the lucky monkey, or actually good. Either way, I doubt a lot of people would have known at the outset that he was the "good" one to put their money on, and by the time it was really evident, it was a little late to bet on that horse.

Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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