1. How well has the Magellan Fund performed in recent years?

In marking this assessment,

what benchmark are you using? How do you measure investment performance? What
does good performance mean to you?
The return beat the benchmarket of SP 500 for 10 year. Astonishing

There are two ways to measure investment performance; the percentage of annual growth rate of
NAV assuming reinvestment (the total return on invest) and the absolute dollar value today of an
investment made at some time in the past. These measure then compared with the performance
of a benchmark portfolio such as the Russel 2000 Index or the S&P 500 Composite Index.
The investor's main objective is to maximize the expected return of the portfolio he owns, within
a certain level of risk. Net asset valuation (NAV) method in portfolio calculates per share market
value of the fund. The per share price calculated by the net asset valuation method is usually
used to bid the fund. Net asset per share value is calculated by using the formula
The fund performance is measured in terms of annual return. Annual total return of the funds in
the portfolio is calculated by considering all the related transactions that are interest cost, capital
gains/loss, dividend, other realized cost and income on the funds in the portfolio.The annual total
return is calculated by using the formula,
The annual total return is calculated as the net fund’s expense. Annual total return consists of
different things that is income arising from the funds in the portfolio and the change in the fund
prices over the period of time that is a capital gain on available funds in the portfolio.
Annual total return is the better option for the performance measurement of the funds in the
portfolio as it considers all the aspectsof portfolio that is income, dividend and capital gain on
the funds, while net asset value (NAV) only considers the market value of the fund and the
liability arises on the funds in the portfolio.
Benchmark: Wilshire 5000 , SP500
 1. What does good performance mean to you?
Reflect the instrict value, fundermenal value
2. What might explain the fund’s performance? To what extent do you believe an
investment strategy ( such as Peter Lynch’s ) explains performance?
1. Internal research

2.
Do your research
Understand the importance of diversification: 466 stock fixed income 43
Be patient
Invest in what you know
bottom-up: among companies with which the investor is familiar, and then through
fundamental analysis that emphasizes a thorough understanding of the company, its
prospects, its competitive environment, and whether the stock can be purchased at a
reasonable price.

3. How easy will it be to sustain Magellan’s historical performance record into the future?
What factors support your conclusion?
a. Luck, if it is not 100% luck, could be 95%.
EMH, they are luncky event
b. Unusuall ski of mangers

4. What is capital market efficiency? What are the implications for investment performance
in general?
Efficient markets: price reflects available information -fama
a. Price is Fair
b. NPV is postisve, price is fair. May buy. If price is not fair, you don’t buy,
i. Weak-past price-technical analysis is useless,
ii. semi-strong-public, (our market)-generate info to make money
iii. strong-all information (public and private) U.S don’t have inside
trading. ????
iv. important for people know something.
EFFICIENT MARKET:
Efficient market means that all the information regarding the stock or fund is available to all
the public investors and all the information, whether it is public or private is reflected in the
stock or fund price in the market, because when an investorinvests in the capital market, he
wants to generate the maximum return on his investment. In efficient market all the prices
 reflect the true value of the funds or stock.Investors in the efficient fund market make money
when they come to know that that price of the fund is undervalued, they purchase the certain
fund and sell them in the open market when the prices of the fund become normal or
overvalued in the market.
Market efficiency is based on some hypothesis, that is,a weak form of hypothesis, semi
strong hypothesis and strong hypothesis.
The fund manager can add value in the weak form of hypothesis on the basis of fundamental
analysis. Fundamental analysis means that analysis of financial statement, but no excess
return can be generated by the fund manager in case of technical analysis, as technical
analysis reflects the historical prices of the fund, which is not technically sound as the past
data would not reflect the current value of the stock.
The other form of hypothesis is semi strong hypothesis, in which prices of the stock are
reflected by the publicly available information. The fund manager cannot add value in the
semi strong form of efficient market because fundamental and technical analysis are not
reliable to generate excess return in this form of market. Excess. returns can be generated in
semi strong hypothesis if all the previous news is analyzed properly and it considers all this
news before the investment in the fund.
Meanwhile, in the strong form of hypothesis all the market prices are reflected by all the
information in the market either it is publicly available or private. Strong form hypothesis
prices of the stock reflect the true value of stock or fund. Fund manager and any other person
cannot generate the excess returns in the long term in this form of mark

Suppose you advise wealthy individual in the area of equity investments. Would you
recommend investment in the Magellan fund in 1995? In any “growth fund”? what beliefs about
the equity markets does your answer reflect?

Do your research
Understand the importance of diversification: 466 stock fixed income 43
Be patient
Invest in what you know
bottom-up: among companies with which the investor is familiar, and then through
fundamental analysis that emphasizes a thorough understanding of the company, its
prospects, its competitive environment, and whether the stock can be purchased at a
reasonable price.

Peter Lynch approach are sucussfully, it would not be an easy task to sustain Peter’s historical
performance in the future.

1. Luck, maret timeing

2. EMH states new information so quicly relected in the price. In the semi-strong form,
both tech and fumdmental analysis are useless.
Winters Jensen JB 1969
Evaluation of investment portfolio
Who should beat the market if the market if semi-strong?
Let’s look the professional investors. 120 MF. Follow them 1 year
How many of them beat the market? 50.3% , then follow them another 1 year, another 50% beat
the market -then follow the another year-53%-- one more year -47%
No one should consistently beat the market
- Returns consistent with relevant risk adjusted benchmark
o When you value something, what is the risk adjusted benchmark, what is
comparison, you need to earn investment capital
o More risk more return, set a right benchmark
3. So peter’s outperformance is an exception . unless the trader has inside info, that is
not publicly known, he or she cannot consistenly outperform the market.