One of the most common amateur techniques for stock picking involves standing around the water cooler (or online message boards) and picking up on cues given by people who know someone who know someone else who knows yet another person who said this or that and, get this, Stock XYZ is where you want to be. In some cases, these tips work out to the advantage of all those who risked their grocery money or mortgage payments. In many more cases, however, those types of tips do not work out.
See, investing is a lot like the game of poker. While skill and knowledge are clearly valuable, there is always an element of luck. Even the greatest companies with the greatest results can see their stock price plummet… based simply on an outlook that was moderately lower than what investors had hoped for.
This further reinforces the power of mutual funds as an intelligent investment option for every investor. But many defiant investors will argue until they turn red in the face (or suffer a stroke) that there is too much “garbage” in a fund. They will argue that most people should pick the winners instead of taking the whole basket.
The question becomes: which are the winners? So many companies publish great quarterly or annual results only to see their stock price drop. So, how do you pick those winners and what makes those “losers” unqualified?
To make the process easier for investors, consider reverse engineering your investment decisions. Have a handful of stocks that are “guaranteed” to double or triple over the course of the year? Perfect. Buy them… within a mutual fund. Here is how you can enjoy those great returns while protecting yourself against the downside (take note: if you have 5 “sure bets,” at least 2 of them will tank).
1. Search for the Major Mutual Fund owners of the stock(s) in question. For example, let’s look at Apple Inc. Its largest Mutual Fund owner is the Fidelity Contrafund.
2. Investigate the Mutual Fund instead of the stock as it is much easier to do. In keeping with the example above, the Fidelity Contrafund is a highly ranked fund (and has been for the past 10 years). It is considered to have average risk for above average returns compared to other funds in its peer group (unlike Apple alone which would be higher risk on diversification reasons alone).
3. Purchase the mutual fund if it meets your risk and objectives rather than the stock. In keeping with the example above, let’s assume that the talk around the water cooler was wrong and Apple tanks the the same week that Google skyrockets… good thing you bought the fund instead; the Fidelity Contrafund used in this example also owns Google.
Ultimately, owning a mutual fund, even if you are reverse engineering your investment decisions, allows you to enjoy a greater deal of diversification, which is a fundamental of proper asset allocation.
Free Video On How to Use This Rogue Investment Management Technique at the Mutual Fund Site. Chris has more than 16 years of experience in the Mutual Funds industry. He is the Fund Advisor for the Mutual Fund Site at MutualFundSite.org.
There are no posts related to Rogue Mutual Fund Investing.
