Back in the glory days of the 90’s when every investment guru or guru wannabe had, as Andy Warhol duly noted, their 15 minutes of fame, we had our share of these gentlemen and ladies. Lately I’ve been reminded of some of these 15 minute wonders and I thought that a reminder of them might prove useful to investors of today who either have never heard of them or whose memories of them has faded.
So, whatever happened to…?
One in particular that I remember was Peter Lynch, the legendary(?) manager of the Fidelity Magellan fund. A question that I always seemed to be asked in those days was: “how do you explain Peter Lynch.” The esteemed Mr. Lynch it seems had managed with his fund to have surpassed the S&P 500 in ten of the preceding eleven years. A very nice record indeed. I had a very simple reply: “he was lucky.” Now that’s not sour grapes. The record is what it is and it speaks for itself. However, when one looks at the landscape of mutual funds in those days, statistically there should have been three funds that were able to deliver that record. In other words, given the number of funds out there at the beginning of the measured period, one would have expected three to have achieved this result. Moreover, if it were really skill that was involved, then Lynch, after he left Magellan should have been able to continue delivering superior results (his best timing move ever because he left at the top and subsequent managers using the same strategy were never able to deliver similar results thereafter). The historical reality was that he left the fund and became an editor of Worth Magazine where he provided his monthly stock picks — none of which were ever able to perform as his picks had in the past. Fleeting fame and glory!
Moreover, chasing his performance proved to be a futile endeavor. The reality was that at the start of his run (wouldn’t you liked to have been there for the full ride?) there were only a little over 7,000 investors. When he left, they numbered in the hundreds of thousands. Very few — particularly those who remained after he left — actually earned the record returns he had made. A not uncommon phenomenon among investors.
Another shooting star — one that I remember from a PBS news program about what was going on during the dot com/technology bubble — while it was going on so that it actually helped to promote the expansion of the bubble — was one Garret Von Waggoner. This gentleman was the true guru of the technology boom. My goodness, he grew 291% in 1999. Who wouldn’t have wanted to hitch their wagon to his star? A $10,000 investment in 1997 would have grown to $45,000 by March of 2000. Of course, very few were there at the start and most came on board later during his run. So how did investors do?
They lost 21% in 2000; almost 60% in 2001 and 65% in 2002. That $45,000 amassed by 2000 would have dwindled to $3,300 by the end of September 2002. By 2010, his fund, was now named the Embarcadaro Absolute Return Fund and any investor who had the stomach to hang on for the full thirteen year ride would be sitting with just $1,900 to show for both their patience and his supposed skill! Yet, he was touted as the second coming of Peter Lynch at the time.
Another “Legendary Investor” that comes to mind is Bill Miller. He gained, as the press described it, “rock star status” running his fund for Legg-Mason. The fund beat the S&P for fifteen consecutive years from 1991 (take that Peter Lynch). Morningstar named him not only a manager of the year, but manager of the decade.
Subsequently, in later years and in particular 2007 – 2008, his fund fell 55% when the S&P fell 37%. He had bought into housing stocks and financials at exactly the wrong time! He then stepped down from the fund. Subsequently he made a comeback with a different Legg-Mason fund in 2012 & 2013. The fund’s performance has suffered since then. Morningstar’s “manager of the decade” was now the recipient of only one star (their lowest rating). This year, so far, the fund is down 8.5% versus a gain of 7.88% for the S&P 500. A spokesperson now advises: “The fund had a significant struggle this year… The market got concerned about economic weakness and we saw a massive selloff in cyclical stocks.” Well, duh, what happened to the revered prescience of this “rock star?” Miller, of course, providing the reason for the article, has stepped down.
What can one glean from all of this? Beware of shooting stars — they often flame out with negative consequences for those who hitch their wagons to them. Beware of hubris whether belonging to one of these “stars” or in your own character. The stars and events eventually will line up against them and you and they and you will learn humility — likely in a most financially painful way!
- Taylor, Fred. “Commentary, September 6, 2016: Shooting Stars and How Fleeting Is Fame.” Message to the author. 6 Sept. 2016. E-mail.
- Peter Lynch. Digital image. Gurusblog.com. N.p., n.d. Web. 20 Sept. 2016.