I’m not ashamed to admit that I steal stock picks 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:
- 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.)
- 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.
- 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?