American Mythos IV

There is one benefit to having white hair at a young age. You look like a stock broker.

Peter Lynch is actually a person I don’t have issues with. But, I do want to address one myth about him. And that is that his returns were actually good.

What people don’t understand is that fund managers have access to lots of leverage. And they add capital through fund raising as the fund matures. When people compare Lynch’s returns they ignore these two facts. I have simply modeled out a fund that starts small and adds capital at a modest rate. You can see that just buying a 2x S&P500 ETF during the years under the same circumstances under these minimal aggregate conditions beats his return. And in reality the capital allocated to Magellan increased from $10 million in June of 1977 to $14 billion. Which would equate to 6x the capital

The more capital you add the worse his returns look.

Lynch rode the market with leverage. That is all. The real lesson to learn from studying Peter Lynch is just how bad the other managers were during this very easy market period.

In that, Peter is worthy of admiration. He didn’t crush the market he was just the one person (one of a very few) that didn’t fuck it up royally. And sometimes that is a more important skill.

Next time the US is coming out of a severe recession with inflation at 15%. Just buy a leverage ETF and ride for two decades.

— AJ