Wednesday, December 14, 2005

12/14/05 One Way To Make Sure You Are Getting An Honest Opinion

...Here is one tool I use that makes me confident I am getting an honest opinion from an institution. Get the quarterly reports for a mutual fund with a good track record. Then every quarter use a spreadsheet to record all changes since the last report. That way you can see all the new purchases, what they added to, what they trimmed, and what they dumped altogether.
...I use Oakmark, which is my favorite fund company. I am a long term investor in two of their mutual funds. Every quarter, I take the latest quarterly report and dutifully record every change. I use Oakmark because they have a good track record, I think they have integrity, and they are pretty open about their investment philosophy. For instance, when Oakmark makes a new buy, I know that they think the stock is at least 40% undervalued by the market; that they think the business is sound and has a good niche in its industry; and that it has a good management team that is shareholder friendly. Oakmark also typically has a 3-5 year time horizon on new buys, so I am confident that they will not buy during one quarter only to dump it the next. They won't dump it ahead of it reaching their general target areas unless they have changed their mind on it, something they don't do often, and they usually have a good reason when they do. And I have also noted over the years, they won't sell just because a pick has gone down. Often they will buy more!
...Not that I blindly use their picks. I don't. Once again, it is just one more tool I use when hunting for stocks. And the fact that I am much more short term oriented than they are makes a lot of their picks unsuitable for my trading portfolio. But then there are those magical moments that happen sometimes in the markets, too. I remember fondly the day that I was going through their report and found that they had just bought into XTO for the first time. I was already in XTO (wish I had just stayed in it from the very first time I bought in), but it made me feel good to see that Oakmark agreed on the pick, and that I had found it before they did. I felt even better much later when one of the Navellier Funds (I think it was NPMDX the one I used to follow) had bought into XTO enough that it was a top ten holding in that fund for them. I love it when my favorite value pickers (Oakmark) and a good growth picker (Navellier in my opinion) agree on a stock in which I already have a position. :)
...That strategy also makes me feel like I have a first rate professional staff doing research work for me, and I like that.

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