Gyroscopic Investing

I'm a bit confused: It seems that "everyone knows" you can't time the market and consistently beat the S&P.  So, are books like Peter Lynch's just a con?  What motivation would he have for trying to lure so many people to their financial doom?  To get them to open accounts with Fidelity?

Or maybe you can learn to pick winning stocks?

It's easy to believe it's possible to time the markets.  And a given individual may succeed, by luck, for a time.  It's CERTAINLY easy for that person to believe that it was more skill than luck!

Peter Lynch was such a celebrity when that book came out, I think that it seemed like anything was possible.

I read it around 1990 and it seemed like successful investing was very easy based on the way he described it.

In recent years Peter has been saying rather bogleheadish things like "most investors are probably better off sticking to a handful of low cost index funds." He also wrote a nice review of one of Jack Bogle's books.

MediumTex wrote: Peter Lynch was such a celebrity when that book came out, I think that it seemed like anything was possible.

I read it around 1990 and it seemed like successful investing was very easy based on the way he described it.

I read it, about that time too.  Can't remember much more than: "Pay attention to what your kids think is hot... and then consider investing in it."

Coffee wrote:

MediumTex wrote: Peter Lynch was such a celebrity when that book came out, I think that it seemed like anything was possible.

I read it around 1990 and it seemed like successful investing was very easy based on the way he described it.

I read it, about that time too.  Can't remember much more than: "Pay attention to what your kids think is hot... and then consider investing in it."

I remember "Auto companies are cyclical.  Buy them when they are cheap and sell them when they are expensive."

I did more research into Lynch a few days ago.  Unfortunately, I can't remember what I had for lunch yesterday, let alone everything I unearthed about Lynch.

One thing I do remember about his fund though, is that his hand picked successor did pretty miserably, under performing the market for several years after Lynch left. 

And even Lynch himself didn't do all that hot toward the end of his career-- some people ascribing his success to mere luck.

I don't know.

But if his hand picked successor can't beat the market, either the guy didn't read the book or... there's no way in hell I can beat the market using his approach.

Beating the market isn't too hard. The difficulty arises in consistently bearing the market. I think it's possible, but beating the market on a consistent basis involves some pretty serious skill and access to expensive tools. It's the kind of enterprise that seems like it must be really easy when in fact a huge amount of work and preparation and experience and training and knowledge and research goes into the process for everybody who manages to do it successfully.

A while back they did a study of 10,000 managed mutual funds to see how many beat the market over a ten year period. In the end they came up with ten. No matter how skilled you are its still mostly a matter of luck.

The people who beat the market year in and year out are either...

A) Putting their money in super low cost index funds and reinvesting the dividends which compounds hugely over time. Or...
B) Bernie Madoff.

It actually makes sense to me that most actively-managed mutual funds would fail to beat the market. What's the incentive structure like? The fund takes a set percentage and the manager gets a set fee, regardless of how well his fund does. As a result, we should expect that the most successful actively-managed mutual fund managers would be skilled not in market timing but sales and marketing.

Keep in mind I'm totally talking out of my ass here since I have no real experience with the shark-like world of Wall St market timing, but I strongly suspect that the most successful market timers keep their skill to themselves.

Pointedstick wrote: It actually makes sense to me that most actively-managed mutual funds would fail to beat the market. What's the incentive structure like? The fund takes a set percentage and the manager gets a set fee, regardless of how well his fund does. As a result, we should expect that the most successful actively-managed mutual fund managers would be skilled not in market timing but sales and marketing.

Keep in mind I'm totally talking out of my ass here since I have no real experience with the shark-like world of Wall St market timing, but I strongly suspect that the most successful market timers keep their skill to themselves.

A dash of borderline inside information here and there also helps make these guys look smarter than they actually are.

Keep in mind this book was written in a period when index investing wasn't as common (I don't think the SPY etf was even out yet)..  so stock picking was thought of as the way to go.