Be careful of stock tips from portfolio managers. They may know more about stocks than your hairdresser, but if they’re talking up a stock, they’ve probably already accumulated it.
We like to keep up with media coverage of mutual funds. But we find it peculiar when media reports, rather than reviewing individual funds according to their mandate, managerial style, performance and volatility, prefer to focus on getting mutual fund portfolio managers to talk about the individual stocks they’re buying or selling now.
If a fund manager is telling the world what stocks he likes, he probably has already accumulated his position.
That information, after all, should be of more interest to the investor who buys individual stocks rather than the mutual fund investor. It suggests the media feel a majority of readers fall into the former category. We think that’s probably true.
Many of these readers may hold mutual funds as the core of their portfolio. But they may not be all that interested in examining mutual funds in detail on a regular basis. Once you’ve chosen a portfolio of funds to fit your needs and that you trust, you’ll just want to add to it on an ongoing basis.
Investing in stocks, on the other hand, can be much different. Stocks change in nature and in price daily. And investors who like to trade stocks are in constant search of attractive investments. The fact that a fund manager likes a particular stock can convince many a stock market investor it’s a good prospect.
Fund managers tend to like stocks they already own
If you’re a mutual fund investor, of course, you in effect hire a money manager to monitor stocks continually, buying and selling for the continuous betterment of your portfolio. But we caution against taking stock tips from media interviews with portfolio managers.
Portfolio managers, being human, tend to like stocks more and more as they accumulate them—especially if the price increases as they accumulate. So they’ll happily tell reporters about winning stocks they already hold. Even if the portfolio manager has been spot on about a particular stock, by the time he or she is ready to tell the world about it, it may be too late or too expensive for new investors.
Also, when a portfolio manager decides, based on research, that he or she wants to buy a significant amount of stock, investment dealers may take considerable time buying the stock, trying not to alert potential sellers and driving up the price. So the manager will not likely tell reporters about stocks she’s in the process of buying.
As a wise investor once said: “In the trading game, if you’re not making the news, you’re too late.” Invest in stocks based on research, or let the pros do it for you. Don’t rely solely on media reports about stocks the pros like now. The word ‘now’ can be highly misleading.
This is an edited version of an article that was originally published for subscribers in the June 14, 2019, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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Money Reporter •9/16/19 •