Don't Emulate The Big Boys

Many investors buy or sell certain stocks because fund managers are doing so. These investors swear by fund managers’ actions. For them fund managers’ actions are the equivalent of insider information in stocks and a pointer to where prices are headed in the near term. Such investors spend their entire day watching the bulk and block deals on Bombay Stock Exchange (BSE) to pick up information of this kind. At first glance, this might appear to be a sound approach. Fund managers are supposedly most knowledgeable about happenings in the equity markets. They have got considerable resources at hand for analysing companies before they invest in their stocks. Fund managers’ participation also, to a large extent, allays the fear among retail investors that there might be something fishy going on inside the company. More importantly, these institutional investors are the only ones who can decide whether a stock will be tomorrow’s Infosys. It is an accepted fact that institutions are the primary drivers of the equity markets. Investment by retail investors alone will not drive up the price of a stock. For that to happen institutions must invest in these stocks. So which stocks they are investing in is at least worth a second look. That’s exactly what we did. We tested the validity of the follow-the-fund manager

This article was originally published on May 04, 2011.