The very first investment book I read was Beating the Street by Peter Lynch, the legendary manager of the Magellen fund. This was back in 1997. I had accumulated some savings from my job after college. And I was eager to make it grow. My first stock was Cisco Systems. Many more winning stocks followed. “This investment stuff is pretty cool”, I thought to myself.
Then the Tech Wreck of 2000 hit and my beloved stocks tanked. Suddenly, whatever stock picking prowess I had was gone. It was then that I realized that one shouldn’t confuse genius with a bull market.
Then I read a book by Jeremy Siegel titled, Stocks for the Long Run. Siegel wrote about Peter Lynch. What I read surprised me. Here’s what Siegel writes:
“The most outstanding mutual fund performance over the entire period is that of Fidelity’s Magellen fund, whose 19.8 percent annual return from 1971 through June 1997 beat the market by almost 7 percent per year. The probability that this performance was based on luck alone is about one in 200. But this means that, out of the 198 mutual funds that survived the period, there is a very good chance that one would have performed as well as the Magellen fund by chance alone.”
Siegel goes on to say that during the 1977 through 1990 period that Lynch managed Magellen, the fund outperformed the market by an incredible 13 percent per year. Suddenly, it was like comparing my stock picking abilities to God. Yes, Lynch was a great fund manager. And his books demonstrated his stock picking brilliance. But now it seemed next to impossible for someone to duplicate that talent and “Beat the Street”. Especially over long periods.
So what does Peter Lynch, Warren Buffet and Benjamin Graham, the father of fundamental security analysis, say now? According to Burton Malkiel, the author of A Random Walk Down Wall Street, these three investment legends recommend that most investors would be better off in an index fund.
