Behavior Gap Radio 1352 | An Astonishing Behavior Gap
Dec 8, 2025
In this discussion, the focus turns to investor behavior and the notorious behavior gap. Carl highlights Peter Lynch's impressive 29% average return with the Magellan Fund versus the mere 7% earned by average investors. A Fidelity study reveals many investors lost money due to poor timing. The conversation stresses how big gains entice investors to buy high, leading to underperformance. It underscores the tendency to sell after losses and the necessity of having guardrails to maintain effective investment strategies.
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Magellan's Stellar Yet Miscaptured Returns
- Carl Richards recounts Peter Lynch's Magellan Fund averaging 29.2% from 1977–1990 as a striking historical example.
- Despite the fund's strong returns, many investors failed to capture that performance due to timing and behavior.
Behavior Gap Explains Lost Returns
- The behavior gap is the difference between average investment return and what the average investor actually receives.
- Emotional timing and cash flows, not fund performance, often determine an investor's realized return.
Hot-Year Trap: Buying After The Spike
- Carl describes funds that post huge returns (like 70% in 1980) then attract flocks of new investors who buy late.
- The next year those funds often underperform and late buyers sell, exemplifying buying high and selling low.