How to beat the experts at investing (including Warren Buffett).

Definitely, people who buy and sell mutual funds based on reading their annual returns will lag the market. People buy funds that have done great and sell those that lag – the very definition of buying high and selling low.

wealth from thirty

Screenshot 2017-05-20 11.44.58 Performance of US Shares (S&P500; yellow), Australian Shares (blue), International Shares (orange) and Australian Bonds (brown) since 1970. Source: Vanguard Investments Australia.

As a bit of light reading this week, I perused an investor newsletter by Mike Taylor, CEO & CIO of Pie Funds (Pie Funds is a small New Zealand funds management firm). Mike recalled the story of how Peter Lynch wondered what return investors in the fund which he managed – Fidelity Magellan – were  getting versus the fund’s actual return. During the period 1981-1990, the fund returned a very decent 21.8% p.a. The average individual investor however, actually achieved an annual return of 13.4%.

How can an investment in such a stellar fund perform so poorly on a relative basis?

Lynch noted that due to their buying after a period of strong performance and selling  after relative poor performance, investors were doomed to substantially lag behind the fund.


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