Fidelity to re-open their "legendary" Magellan Fund to new investors for 1st time in over a decade.

[A HERETIC I AM]

BOSTON (MarketWatch) -- Fidelity Investments on Monday said it will reopen the legendary Magellan Fund to new investors for the first time in more than a decade.
The roughly $45 billion fund, (FMAGX:Fidelity Magellan Fund

FMAGX 87.96, -1.58, -1.8%) which had come under fire for lackluster performance in the late 1990s and early 2000s, has turned around under manager Harry Lange, who took over in October 2005 from Robert Stansky.
"If we're able to achieve a better balance of cash flows in the fund going forward, I'll regularly have the cash on hand to capitalize on attractive investment opportunities as I find them," Lange said in a statement.
Fidelity Magellan Fund has gained 11% over the past 12 months, according to investment researcher Morningstar Inc., easily outpacing its benchmark as a result of growth-stock picks that paid off last year.
The Boston fund giant said it will reopen Magellan Fund to new investors effective Tuesday.

(snip)

Fidelity Magellan was once the nation's largest mutual fund and has been managed by celebrated stock picker Peter Lynch and Fidelity Chairman Edward "Ned" Johnson III. Closely held Fidelity is controlled by the Johnson family, and the chairman's daughter, Abigail, is a key executive.
"We believe that the time is right to make Magellan available to a new generation of investors," said Walter Donovan, president of Fidelity's equity division. He said the fund's investor base has aged while it was shuttered, and some holders are cashing out as they retire.

Story from Marketwatch

Edited to add quotes around the word "legendary" in post title.

[Fresh_Start]

1. 'holders are cashing out'

what are the cashing into?

A few of the long closed funds are reopening.

[wakemeupwhenitsover]

2. I don't know where to start.

Legendary? When they did so poorly in the late '90s when a monkey could throw darts & probably pick attractive stocks?

And I'm not really sure about this, but didn't Lynch come under fire for hiding some of the charges thereby inflating the returns?

[A HERETIC I AM]

3. "Legendary" is the author of the story's word, not mine.

And you are correct, their 10 year total return numbers suck. 6.31%
"Growth of $10,000" chart where red is the fund, green is the S&P 500 and orange is the fund category.

Trailing Total Returns through 01-11-08  
  
                 Total Return % +/- S&P 500 TR +/- Morningstar Lg Gr TR Index  % Rank in Cat 
1-Day               -1.76          -0.41                 -0.22                      63 
1-Week              -2.36          -1.66                 -1.19                      79 
1-Month             -5.81          -0.79                 -0.20                      56 
3-Month             -7.25           2.15                  1.44                      34 
Year-to-date        -6.30          -1.78                 -0.79                      71 
1-Year              10.94          10.67                  7.15                      18 
3-Year Annualized    9.03           1.22                  3.16                      34 
5-Year Annualized   10.18          -0.43                  2.77                      49 
10-Yr Annualized*    6.31           0.40                  5.42                      32 

But the funds "Since Inception" (05/02/1963) returns are fairly respectable at 18.34% average total return/year
http://quicktake.morningstar.com/FundNet/TotalReturns.aspx?Country=USA&Symbol=FMAGX

The new manager, Harry Lange has only been in charge for just over 2 years.

As far as Lynch is concerned, I don't recall reading about him and the stories I read which lead to me posting this mention him only in passing.

I thought it was noteworthy merely because it was at one time the largest Mutual Fund out there that had closed to new investors and now will reopen. This is not a recommendation to purchase by any means. Posted for its possible interest as a news item only.

[gravity]

10. It was legendary when Peter Lynch was running it

but he retired back in 1990

[nightrider767]

4. The reason why the market doesn't "tank"

is because it's a slow process for the big boyz to get their money out.

Check market fundamentals vs performance.

The whole thing is a ponzi scheme.

Stocks don't lose money, people lose money. And that money is not lost, it's taken by someone else.

[Common Sense Party]

6. Stocks go up and down in value. Whether you sell them, buy them,

or hold on to them is up to you. If you sell them for less than you paid for them, you lose money. If you sell them for a higher price, you make money.

Then there are dividends.

'The whole thing is a Ponzi scheme'?? No, not by definition and certainly not from experience.

[nightrider767]

8. I'll stick with my Ponzi scheme idea

""Ponzi scheme
From Wikipedia, the free encyclopedia

A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. ""

***********************************************

I'm not on a crusade to destroy the stock market. On the contrary, I'm a fairly active investor and enjoy trading. But that being said, I do have certain "beefs" about it, especially how the small investor is always at a disadvantage.

Make no mistake about it, in my view the "market" is like a casino with the market makers and huge investment fund managers having the "house" advantage. The little guy is always at a disadvantage.

But there are plenty of other falsehoods that perpetrate the market. Like the idea that stock "paper" has some relationship to ownership. Now we can go back and forth on that all day long, but for my view on it, I look at the United Airlines bankruptcy.

United stockholders in the bankruptcy got next to nothing. Stocks were canceled, new stocks issued, and the CEO is now the largest individual stock holder, with the company touting billions of dollars in assets.

That's the way things work in reality, not the theoretical level the small investor considers it.

Look at the dot.com crash, look at the current bear market.

WHo's gonna be left holding the bag, not the big boyz....

I cashed out last month.

I'm looking for an investment to hedge the sinking value of the dollar now.

My 2 cents worth.

Cheers.

[Common Sense Party]

5. Peter Lynch WAS the Magellan Fund.

I wouldn't invest in it under anyone else's management.

[AdHocSolver]

7. They want "new investors" to buy the stock the insiders want to unload before the price drops.

The stock price has little to do with the viability or profitability of the company that issues it. It has everything to do with how well the insiders can gull people into believing that they will make money by buying it. Enron, among many others, is a prime example of how it works.

The insiders increase demand, often with deception, to drive the price up. Then the insiders sell and make their profit. Stock options and low capital gains taxes drive the system. The insider sell off eventually drives the price down. The last ones to buy "high" lose their investment. After the price drops, the insiders by back the stock at a lower price and start the ball rolling all over again.

It is essentially a Ponzi scheme. It requires bringing in new suckers...er...investors to keep it going. That is one reason former Fed chairman Greenspan kept the interest rates so low. By keeping the interest paid on savings accounts and CD's below one percent, the middle class was lured into putting their life savings and retirement funds into the stock market for those "fabulous" returns. That is how Enron stock became so high. The company was losing money, but by getting more people to buy its stock, the price was artificially inflated.

Today, the stock prices are maintained artificially high by the big investor groups constantly shifting their funds around from one stock to another. As long as they keep buying and selling each other's stocks, the prices will stay high. When some of them stop playing the game, the whole stock market will collapse. It is a game of musical chairs. The first ones to sell before the "crash" will make out like bandits. The rest will lose huge. Timing is everything.

Meanwhile, in the REAL economy, unemployment, huge amounts of debt, government deficits, offshoring of jobs, and bankruptcies are taking a toll on Americans. The big investors are merely trying to time their bailouts before the REAL economy collapses. They will try to keep the scam going at least until after the November, 2008 general election.

[A HERETIC I AM]

9. Actually, very little of what you wrote pertains to shares of Mutual Funds.

The reasons Fidelity is re-opening the fund to new investors are numerous but among them is most certainly the fact that current investors in the fund are redeeming shares and this has lowered the overall assets under management in the fund.

When you buy shares of a mutual fund, you are NOT buying shares someone else is selling. A Mutual Fund is known as an "Open End" fund which means there is no limit placed on how many shares can be created. The Mutual Fund company is free to open or close the fund to new investors at will, as is the case with this fund. When you buy shares of such a fund, what essentially happens is the fund manager takes your money and goes to the market and buys an equivalent dollar amount in shares of all the stocks and/or bonds in the fund. You are then issued "New" shares; The fund manager has created new shares of the Mutual Fund that did not exist yesterday. That is why you MUST receive a prospectus when you buy shares of a Mutual Fund. You don't get a prospectus when you buy shares of common stock that has already been issued and is trading - 3M for instance. If you bought 100 shares of 3M you would NOT receive a prospectus from 3M.

Also, when you sell shares of a Mutual Fund, you do not sell them into the market. They are "redeemed" by the Mutual Fund company and the process is reversed - the fund manager sells off an appropriate percentage of all the stocks and/or bonds held by the fund in order to get you your cash. That is why the share price of such a fund is calculated only once a day - at the end of the day. The fund takes all the days requests for purchases and sales accumulated throughout the day, adds up the value of all the shares of all the stocks they hold (which now all have different values than yesterday because all those stocks traded on the various exchanges during the day), subtracts the redemptions and adds the purchases, calculates any new receipt of dividends and interest payments from the companies they are invested in, divides that by the new total number of shares issued and held by the fund shareholders and comes up with the NAV or "Net Asset Value" price per share. If the majority of the stocks held by the fund had a good day, the NAV will be higher than it was yesterday. If they all had a bad day, the NAV will be lower.

My apologies if you already knew all this information, but your post seemed to indicate a bit of a misunderstanding as to how a Mutual Fund is constructed and how shares are created and redeemed. They are most certainly not shares of stocks. Shares of a Mutual Fund are an entire portfolio of stocks and/or bonds created with a particular goal in mind. In the case of the Magellan fund, the purpose is growth of principal and they attempt to do that by primarily investing in large, well established companies. There are currently over 1,700 Mutual Funds that fit the "Large Cap Growth" category.