[cdxx]

"... The theory was that a fund with 900 stocks in it didn't have a chance to beat the market average because it was the market average. I was accused of managing the largest closet index fund on the planet.
This theory that a large fund can only be a mediocre fund is still in vogue today, and it's just as misguided as it was a decade ago. An imaginative fund manager can pick 1,000 stocks, or even 2,000 stocks, in unusual companies, the majority of which will never appear in the standard Wall Street portfolio."

Peter Lynch, "Beating the Street" chapter 6, page 116-117.

"Magellan became a $10 billion fund in May 1987. This announcement provided more grist for the naysayers who predicted it was too big to beat the market. I can't quantify the contribution that skeptics made to my perfomance, but I don't doubt it was substantial. They said a billion was too big, then 2 billion, 4, 6, 8, and 10 billion, and all along I was determined to prove them wrong." (ed: which he did)

"Beating the Street", chapter 6, page 130.

I could attempt at pointing out where DesertCat misunderstands why more money lowers returns, but I won't. I'll say that a fund is not limited to owning 5% of a company. it is limited to buying 5% of a company, and upto some percentage of the fund, which is a little different. it is also not limited to 100 stocks, or 1000 stocks. The disadvantage of a large fund is having to do bookkeeping for 1000 stocks instead of 100 (edit: also finding 1000 companies that could double in value as opposed to 100). there are advantages to a large fund as opposed to a small fund as well. such as not having to sell off assets, sustaining greater variance, etc.

I will agree that one of the easiest ways for a fund to lose capital is invest in stocks that a fund manager doesn't like. But there's no indication that Lynch or Danoff ever had that as a requirement.