An Advantage You have Over Fund Managers
Most people who consider trading stocks or investing in individual stocks often say to themselves 'if this strategy for investing in individual stocks was so good, why wouldn't mutual fund managers be using it?'
After all, fund managers are paid millions per year to make money for their customers. Are they just not smart enough to know there is a better way? Really?
That is often the initial reaction to using these techniques. But then, when you do your homework, you find out that 90% of all fund managers under perform the market averages.
But how can you beat a guy making millions of dollars per year who graduated near the top of his/her class from a prestigious university in economics, accounting or finance? Who has been trained and mentored by some of the best minds on wall street?
Well, first of all, a lot of fund managers do use a similar methodology to what we teach. And although they often will not admit to it, they often use some form of technical analysis to judge good entry and exit points.
The problem they have, however, is that they have to buy dozens of stocks in their fund. If you look at some of the most popular mutual funds available, you will find that most hold between 50 to 150 stocks in their portfolio.
They also have to invest 100s of millions to billions of dollars. So they cannot buy all at once and hit a great technical entry point. If they do, the stock could surge 5% to 20% or more just by buying millions of shares all at once. They have to accumulate shares over time and miss the ideal window of opportunity.
These are the primary reasons why the vast majority of fund managers will under perform the returns of the overall market. In any given market, there are a handful of stocks that are really displaying the fundamental and technical characteristics that are proven to beat the market. And there are only certain points in time where the stock is likely to make big gains in short order according to technical analysts.
You are not going to find 50 or more elite growth stocks in any given market that do not have the red flags indicating that growth is likely to slow. And there are only a few stocks with the huge earnings beats and rapidly rising estimates that are proven to beat the market by a wide margin in the short-term.
And fund managers generally have strict rules about how many stocks they need to hold and how long they hold a stock on average. However, the lion's share of a stock's move normally occurs within short time-frames throughout the year. When the fundamentals and technicals are trending strongly higher.
There are only so many stocks with explosive and consistent earnings and sales growth. Or estimates that are doubling for a company that has a strong track record of beating those estimates. These are the precious few stocks that will more rapidly make your financial dreams a reality.
Stocks like VIPS, our first top trading setup in 2014, and Facebook, another stock with explosive growth we featured the prior summer breaking out of a large cup with handle pattern, are pretty rare. Both of these stocks made triple-digit moves within a year after we featured them to our customers.
A fund manager just will not find 50 Facebooks in any given market. Not with all the characteristics that are proven to lead to much higher prices for the stock. Because they're not 50 of them in any given market.
Now much more than 50 stocks will make that kind of move in any given year. However, most of these moves will be due to luck. And the probability of any of those stocks making a big move, without the proven characteristics, is very low.
Pick 50 of them, and you have pretty much zero chance of making as much as you would if you just selected the very best 3 to 5 stocks in any given market. Because there are a thousand with similar characteristics and high hopes for their stock price for the coming year. But without the track record to prove they can make it happen.
Now most fund managers would be fired if they held just 3 to 5 stocks. It would violate the rules set by the mutual fund company.
And a lot of fund managers are just looking to match or slightly beat the market averages just to keep their high paying job. So why take any chances anyway when you can guarantee a lower return that will keep your job yet be on par with your peers?
Hope that explains better why you have an advantage over fund managers. You can view our latest performance chart on Investtobefree.com to see the potential of focusing on just the top 3 stocks in the market each week with a proven strategy for the aggressive portion of your overall portfolio. Something fund managers are unable to do for the reasons above.
Of course, another great option to try and get a better return for your aggressive portfolio is to use the methodology taught on this site. It takes more time than buying and holding. However, the results can be well worth it – for those who have the discipline to learn and consistently use the methodology week in and week out for years.
Brian C Neall – Founder