How can the Casual Investor Beat the Market

Pass by any news stand, or visit nearly any web site devoted to investing, the stock market, business or finance, and you’ll most likely find one, or possibly even several articles headlines imploring you to explore: “the worlds greatest mutual funds”, “which funds will be hot in 2007”, “these growth funds are on fire”, “Five value funds that have out performed funds in both the Milky Way and Stratospherous X “. Ok, maybe not the last one but these headlines do grab your attention. They grab my attention too, but for a different reason than what the author probably intended. More on that in a moment.

Mutual fund managers prosper and swoon by their knowledge of the market, and their ability to analyze companies in accordance with the investment philosophy, or philosophies they adhere to. Not only are they experts in their field, they have access to far more sophisticated measurement utilities regarding stock performance, estimated earnings of companies, and research material at their disposal than little guys and gals like us. Many employ stock analysts covering several, if not all sectors of the stock market. To put it mildly, they have resources far beyond that of the individual investor, you might even say a stratosphere above the average investor.

Acknowledging those advantages, shouldn’t we utilize these advantages to assist us in enhancing our abilities to analyze stocks we are interested in purchasing ourselves. Oh, I think so! There are avenues available to all investors that allow us to peer into the universe of fund managers. Many of you may know that by utilizing web sites such as Google Finance, Yahoo Finance,,, we can observe the holdings of mutual funds. Typically, you just type the fund ticker symbol into one of the above sites search engine and it will spit out the funds quote information, where you can usually find a heading like fund holdings, holdings, or portfolio that you can click on to display the funds top 5, 10, or more holdings.

Once at the funds holdings you can view usually by percentage of the funds total, the top holdings that the fund invests in. This on it’s own is good information. However, there is a way that with a little bit of work,you can look into the world of top performing funds, compare those holding, and find clusters of the same company that has been invested in by these different funds. This information can be useful on several levels. First let me explain how I went about exploring these funds. Be patient and follow the directions below.

First I identified the type of stocks I was interested in researching. For the following example I used Value Stocks of Large Capitalization Companies. Then I pointed my browser to: (Once there I was greeted with headlines stating: “Mutual Funds That Are The Best Of Both Worlds”, “Fund Times: Fidelity Hires Another Promising Manager, “The Six Biggest Manager Changes of 2007’s First Half”) See I told you! I then clicked on “Tools” located on the top menu bar, then under the basic screener I clicked “mutual fund”. At the mutual fund screener I identified the following criteria to screen for funds: Morningstar Category equal to Large Value, Manager Tenure greater than or equal to 10 years, Morningstar Risk better than or equal to Average. You can use this same screener for several different styles of funds including: growth funds in small cap, medium cap, and large cap fund classes.

The screen provided seven funds meeting the criteria above: 1st Source Monogram Income (FMIEX), Amana Trust Income (AMANX), Blackrock Equity Dividend Load Waived (MDDVX), Blackrock Equity Dividend I (MADVX), Eaton Vance Lg Cap Value A (EHSTX), Gabelli Equity Income AAA (GABEX), Dodge & Cox (DODGX). Now that we have funds that meet the type of investment we are looking for lets dig a little deeper into each of these funds, and thus the fund managers world. I think we might find some compelling information!

If you right click on the first fund listed, 1st Source Monogram Income, then select open in new window, you will find that the fund quote information will be displayed in a new window. Next,in the new window look to the left and click “portfolio”, if you then click top 25 holdings, located the right of the portfolio tab, you will be taken to a screen showing the funds top 25 holdings by weight. Now we are getting some where, this is good information related to how heavily the fund is invested in these holdings, the stocks performance and the price to earnings ratio. But we want more, click “Get Price Quote” located just below the Top 25 holdings tab. Voila, Stock symbol, stock price, volume, performance this is all very good information, but not what we are looking for.

Now we are ready to transfer this information to our own spreadsheet. Spreadsheet! Who said that, look I’m leaving right now if someone starts talking about spreadsheets, that stuff is not for me. Oh, sorry that’s my anti-spreadsheet alter-ego. Your probably nodding your head right now. Saying forget this I am not starting with a spreadsheet, that stuff is just too confusing. Don’t worry, this IS easy, we are not going to do any calculating, graphs, or spreadsheet calculus. So stay put, and follow these simple instructions.

Copy the stock quotes, and paste them to a spreadsheet. Heres how: Point your mouse to the Morningstar page Multiple Price Quotes section, hold your left mouse button down and drag it to the bottom of the stock quote information, all of the stock quotes should be highlighted now, right click your mouse, select copy. Now simply open your spreadsheet, click on the first cell at the top left, right click again and select paste. Now do this for each of the funds your fund screen identified. It only takes 5 minutes.

Ok, I’ve already done the hard work on the seven funds that were listed on my mutual fund screen. I drilled down through each fund and copied the stocks from each fund into a spreadsheet. I sorted the stock symbols alphabetically, and found the information I was looking for. It took me 15 minutes to do the entire operation from screening, drilling, pasting, and sorting.

Now I have the top 25 holdings of each of these 5 Star Funds, once I sorted them I simply looked down the list for multiple listing of the same fund symbol. Any listing with 3 of the same symbol makes me curious, 4 of the same make me interested, 5 or more and I yell BINGO! Here are the results of the sort:
BAC – 3, DE – 3, HPQ – 3, JPM – 3, MRO – 3, RTN – 3, UTX – 3, VZ – 3, COP – 4, GE – 4, PG – 4, TRV – 4, XOM – 4, CVX – 5, C – 6, T – 6.

I found that 6 of the 7 funds were invested in AT&T and Citigroup; 5 of the 7 held Chevron Corp; 4 of the 7 hold Conoco-Phillips, General Electric, Proctor & Gamble, The Travelers Companies, and Exxon-Mobil; 3 of the 7 funds hold Bank of America, Deer, Hewlett Packard, JPMorgan-Chase, Marathon Oil, Raytheon, and United Technologies Corp.

Utilizing these funds based upon the criteria I screened for gave me over 175 companies that the funds invest in, out of the 175 holdings I identified consensus among the funds managers in 16 of the 175 holdings. I could go one step further and sort the percentage that each of these funds held for each stock. In other words, if the average weight for AT&T was 2.5% and the average weight for Citygroup was 1.5% that would give me yet another data point to observe.

Where this type of fund analysis really becomes helpful is in validating stocks that you have researched on your own (as you should for any investment you make), and in finding consensus among investment philosophies. You can use this type of screening process to identify Mid-Cap and Small-Cap stocks held by a consensus of fund managers who are among the elite in their field. You can do the same for growth and value funds. Additionally, if you feel you need an energy stock to diversify your portfolio, why not shop among the worlds best energy fund managers, it’s almost as if they were standing over your shoulder pointing, there look at that one, that’s a worthwhile stock to investigate.

As with all investments I would encourage you to do your own due diligence on the company, fund, or exchange traded fund you consider investing in, after all it’s your money. If you follow the ground work I’ve laid before you , and take the time required to do insightful homework on the stocks you identify, you might also find that you will become a better investor by following some of the best investors in the world, nay, in this universe or any other.