A Legendary Track Record
Peter Lynch is one of the greatest fund managers in history. From 1977 to 1990, he managed the Magellan Fund and achieved an extraordinary 29% CAGR over 13 years. This kind of public market performance is almost impossible to beat. A simple investment of $10,000 at the start of this period would have turned into $260,000 by the end. Such returns are rare, yet what is even more surprising is what happened to the fund’s investors.
Frequent Drawdowns Along the Way
Despite delivering such outstanding returns, the journey was far from smooth. The fund had multiple corrections during these 13 years. It went through a 10% or more drawdown 15 times, a 15% drawdown 6 times, a 20% drawdown 4 times, and at one point, even a 35% fall. Nearly half of the time, the fund was trading below its recent high. These phases of temporary losses made it difficult for many investors to stay invested for the long term.
Why Most Investors Did Not Make Money
Even though the fund itself delivered massive gains, the average investor in the Magellan Fund did not make money. This is because investors would enter and exit at the wrong times. Many panicked during market corrections and sold their holdings. Others chased performance, investing at market peaks and then selling when prices fell. The behavior of these investors worked against them, and they failed to capture the full returns of the fund.
The Role of a Fund Manager
A fund manager’s job is to manage the investments, not to control investor behavior. Peter Lynch couldn’t stop investors from withdrawing money when markets were down. Nor could he prevent them from investing huge sums at market tops. He simply had to focus on running the fund efficiently. However, investors who did not stay invested missed out on the long-term benefits of his strategy.
The Biggest Lesson for Investors
This is one of the most important lessons in investing. Even if you are lucky enough to invest in one of the best-performing funds, your behavior will determine your final returns. Investors who try to time the market, enter and exit frequently, or let fear and greed dictate their decisions often fail to benefit from great opportunities. The key to wealth creation is patience and staying invested for the long term.
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