Peter Lynch - Magellan
Sometimes college professors don’t have the right data…
The Superinvestors of Graham-and-Doddsville
“Superinvestor” Warren E. Buffett, who got an A+ from Ben Graham at Columbia in 1951, never stopped making the grade. He made his fortune using the principles of Graham and Dodd’s Security Analysis. Here, in celebration of the 50th anniversary of that classic text, he tracks the records of investors who stick to the “value approach” and have gotten rich going by the book.
Sure, Peter Lynch was in the right place at the right time and rolled seven 50 times in a row. I’m not saying it can’t happen. Just that there’s no way to identify these guys a priori. And Peter lynch was smart enough to bail out on top and retire at age 47. His similarly credential successors at running the Magellen Fund didn’t fare as well.
Peter Lynch’s and Buffett’s early success isn’t proof that there’s “skill” in stock picking for an investment portfolio. If there was stock picking skill in the industry, we’d actually be seeing more Lynchs and Buffetts.
Here’s a college professor with the “right data”. James Simon of Renaissance Technologies.
Secretive hedge fund Renaissance Technologies’ reportedly sees $15 billion in outflows despite double digit performance
Renaissance’s RIEF, RIDA, and RIDGE funds returned a negative 19%, 31%, and 31% in 2020, while the hedge fund’s Medallion strategy generated positive returns of 76% over the same time period. That discrepancy seemed to have woken investors up to the fact that the strategy employed by Renaissance’s Medallion fund is not even close to that of its three public funds.
It is a widely held belief within Renaissance that the herdlike mentality among business school graduates is to blame for poor investor returns.
I wish I could find the article I read a few weeks ago. Some one asked James Simon why he closed the Medallion Fund to new investors in 1993 and doesn’t let the assets under management exceed about $10 billion. What not take that “40% of investment profits fee” off $1 Trillion under management and own the World?
The answer was that Renaissance has a computer algorithm that finds small, fraction of a penny, pricing discrepancies in the stock ticker and is correct in their bets just a bit over 50% of the time. It’s a volume business, but if you let it get too big, others will see how you’re doing it, and the opportunity evaporates.
There’s only some much ignorance you can mine from the tape (i.e., the stock ticker).
If anyone wants to learn more about the Medallion fund, there’s a good article in Institutional Investor.
Famed Medallion Fund “Stretches Explanation to the Limit,” Professor Claims