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Wednesday, August 12, 2009

Make Money by Watching the Best Mutual Fund Managers

There are a whole lot of mutual funds out there, and there are quite a few that aren't that impressive, but there are certainly a select few with amazing managers that seem to stand out year after year. Mutual funds are closely regulated and continually update shareholders on what stocks they have been purchasing and which they are selling, so it seems to me like more investors should be taking advantage of a nice free resource. By watching the portfolio of the best mutual fund managers you are able to get some great ideas for your own portfolio, and you can do it all for free.

Just about every major financial website give you a list of the top 10 or top 25 holdings of just about every mutual fund out there. Keep in mind that this information can be a few months old, so the manager may have been making quite a few moves since this list has taken place. Some critics use this argument as a reason for why you shouldn't pay attention to mutual fund holdings.

I understand the point, but if you are investing for any kind of long-term returns knowing what stocks are consistently in a mutual fund's top 10 can be a great tool to use. Many of the mutual fund related websites, such as Morningstar, will show you which stocks the managers have purchased more into since their last filing and which stock they have begun to trim their positions in. This information is useful because most mutual fund managers accumulate a stock over time, so it is often possible to pick up the stock as the manager is still in the accumulation phase.

What exactly makes a mutual fund manager the best? Consistent outperformance is absolutely the biggest key to being one of the best. Everyone can have a great year or two, but those who consistently are able to beat the market and their peers are the ones that you will want to follow closely. The best mutual fund managers also have a consistent strategy or theme that they use when investing, which should be apparent by looking at the moves they make in their portfolio. For example, some fund managers tend to look for companies that have fallen off the radar of most Wall Street traders, and other managers like to look for stocks that yield a high dividend.

The basis of this theory is that there so many different places that investors look for stock picks. There are stock pick message boards all over the Internet, and stock pick newsletters that charge huge amounts of money. Some of these sources may be useful, but many of them tend to fall victim to the pump and dump schemes that are so common now. On the other hand, if you are looking for information from the top mutual fund managers, why would there be any reason to doubt their motive? The mutual fund manager is trying to do his/her best to make money for investors and keep their job. A wise investor will use mutual fund portfolio holding information to help in the process of finding stocks worthy of an investment.

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