When it comes to picking stocks, there are few people better than those who win the Fund Manager of the Year Award from Morningstar, which is akin to winning the Oscar for filmmaking. Below are the Top 3 Tips given by 2 fund managers who’ve won the award, tips that should help the average investor to raise their game well above average. Enjoy.
The 1st Tip comes from Chris Davis, the fund manager for Davis New York Venture Fund and Selected American Fund. Davis says that you should avoid past performance bias. He believes that most investors focus too much on the recent history of a particular stock. Value investors, for example, may decide to pass on a stock because it’s recently had a big move, while growth investors might decide to do the exact opposite.
He believes that both of those choices overlook the fact that savvy investors should look at a company’s fundamentals, industry dynamics and growth trajectory more than its recent past performance.
“You hate passing at something at $20 and looking at it again at $40,” Davis says. “Stocks don’t know where they’ve been. Where they’ve been says nothing about their value. It’s hard to overcome that bias.”
Our 2nd tip comes from Davis as well, who believes that investors should look for CEOs who can adapt. With technology transforming most industries at an incredibly fast pace, management teams are tasked with staying ahead of their competition and many can’t keep up.
“Competitive advantage is a temporal thing. What really matters is a management’s ability to adapt,” said Davis.
The fact is that, with business models that are outdated and complacent management, many media, retail and pharmaceutical companies are struggling. Says Davis “The world changes. If you’re not learning, you’re falling behind.” He cites Mark Zuckerberg, the CEO of Facebook, as one of the best at adapting to the swift and sometimes dramatic changes in his particular industry.
Tip #3 comes from Michael Hasenstab, who manages approximately $190 billion at Franklin Templeton Investments, and it’s simply that, as an investor, you need to do your homework in person. Hasenstab put his money where his mouth is last year in China, central Europe and Africa, making sure that the investments his firm held in these emerging markets were secure.
It’s especially important in areas of the world that are, for lack of a better term, unsettled, and where cultural differences, corruption and media censorship can be very problematic
“It’s definitely integral to our research process to make sure we are out there on the ground and use that observation to help us frame the questions we should be asking,” Hasenstab says.
These 3 excellent Tips should be taken to heart whether you’re a beginner investor or have numerous years under your investing belt. Learning from the best and taking advantage of their knowledge and experience is what separates successful investors from the pack, and the knowledge and experience backing up these 3 Tips comes from two of the best in the industry.