How to Steal the Pros’ Stock Picks

steal ideas

I’m not ashamed to admit that I steal a stock pick from a hedge fund or mutual fund from time to time.  In a universe of thousands of individual stocks, it would take years to do your own sorting – and believe me when I say that reading through the financials of 100+ companies just to find one or two “good buys” is hard work. It takes a lot of time.

There are a few ways to shop other people’s picks, however. You can sort through stock picks that have already been “filtered” for traits that professional asset managers like by looking through the holdings of hedge funds and mutual funds.

Here’s How to Steal the Pros’ Stock Picks

Use these resources to discover where the pros are allocating their investment dollars:

    1. Schedule 13D Filings – Asset managers are required by law to disclose their ownership in a company when they hold more than 5% of the share class of a company’s stock. These filings are public, and sites like InsiderMonkey do a very good job of making public any new filings that announce large insider ownership. The 13D filing will name the owner and the firm, which you can then Google. As an investor, I like to ride the coattails of a large fund that is engaged in activist investing, particularly when the fund is aggressive in seeking dividends, share repurchases, or sales of the companies in which they have a minority stake. Activists have to file the 13D. (Note: the 13G is a similar filing, but is generally interpreted to be less important as it is a simple disclosure form for 5% owners, not an intention to force change in a company.)
    2. Morningstar Mutual Fund Data – Morningstar has a free tool that lets you see inside mutual funds to view their holdings. This tool saves a lot of time in doing your due diligence, since a simple click from the holdings view will send you to the overview of an individual stock. Just click to the financials from there and start doing your own look around. Morningstar also has a tab for quarterly and annual reports which makes it a convenient “one-stop-shop” for research materials. If you’re really greedy, you can filter first through the top-performing mutual funds for the past 1, 3, or 5 years then start digging through their portfolios for possible stock picks. Here’s the page for top holdings of Vanguard’s actively-managed Dividend Growth Fund just as an example.
    3. Talking the Book – Asset managers are known for “talking their books,” which means talking about the companies that they hold. Pick any asset manager you like and do a quick search on Google News for stories. It’s likely that they’ll talk up their most recent winners, so it’s not the best way to find undervalued companies, but it is a good way to add some companies to your watch list for later opportunities when the stock is cheaper. If nothing else, you’ll usually get a free piece of information about a company when the manager discusses his pick. These insights aren’t usually free – take advantage of them!

Let Someone Else Do the Dirty Work

I’m hardly suggesting that you should invest in certain stocks just because they attract the interest of professional investors. What I am saying, though, is if you want to reduce the amount of time you spend researching companies but have an interest in actively-managing your own money, the three resources above can be a good place to start.

Mutual funds and hedge funds have legions of analysts on their side who spend hours each day poring through available investments all day, every day. If you’re keen on saving time, let the professionals do the heavy lifting for you!

How do you start your stock picking search?

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  1. says

    I like the idea of the 13D filings but it’s not something I’d personally do. I know both of our investment philosophies are different, but picking individual stocks isn’t really my thing.

    • says

      There’s nothing wrong with hiring an active manager or using a passive portfolio. Just know that you won’t have as much fun. 😉

  2. says

    Brilliant. In a universe of stocks, the small investor first needs to understand that the big guy has more (and probably better) tools available. Start with his/her list and then work down through your own criteria for investing.

    • says

      I think it tends to work quite well from an individual investor’s perspective. There’s only one caveat in that no matter the fund size, few managers will be in micro to small cap stocks. If you’re cool with midcaps and bigger, stealing the picks of other managers isn’t such a bad idea. Let their research act as a filter to save a little time.

  3. says

    The last time we stole a stock pick from a professional was RIM because Prem Watsa (the Warren Buffet of the north) took a huge stake. That hasn’t worked out so well for us. Oh well at least we cna blog about it!

    • says

      Kind of going off subject here, but I think it’s funny people compare Watsa to Buffett. Watsa is way more lenient in his selections than Buffett is – I can’t see Buffett ever touching RIM or DELL, two companies in which Watsa has a very big position.

      Sorry to hear about the performance of RIM after Watsa’s investment. Tech is a minefield in general.

      How did your experience change the way you invest, if it did at all?

      • says

        I got burned on RIMM as well. Honestly though a lot of people did, they had a monster strong balance sheet with NO DEBT what so ever. However, as it has been pointed out the tech industry is its own monster in itself, with continued technology developments it is hard for kings to keep their thrones for long. 5 – 10 years from now I suspect Apple won’t be the wall street darling that it is.

  4. says

    This approach just moves the bar to selecting the right fund manager. Which is basically as hard a problem as selecting the right stock. It’s not a bad source of ideas though – you’ll at least get exposure to companies you might never have found otherwise.

    • says

      Yeah, again, I’m not saying that you should invest in something because the professionals are invested in something.

      I really like 13D snooping, because if activists are successful, the movements in the share price are usually pretty big. Buyouts and dividend recaps are my favorite kind of play there.

  5. says

    My top 3 are Buffet, Einhorn, and Icahn. But I always tell people to do their own due diligence as you said these fund managers can really only invest in mid to large cap stocks. That’s why I tend to stick with following Hedge Fund managers instead of mutual fund manager’s. I find mutual fund’s deploy cash no matter what because they have to.

  6. says

    I agree, knowledge is power. The more you learn the more you can take control your future. Being an active investor does NOT mean trading all the time, but simply being aware of market cycles and current conditions to make informed decisions.

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