Off the Record

Precision Investing How I Find the Profitable Nuggets in the Marketplace If you invest money in the stock markets, either through mutual funds, or directly, through a broker, you probably do the same things that other investors do. You pick up the newspaper every day, open it to the financial pages, and look up your stocks or mutual funds. Or maybe you subscribe to an Internet stock-tracking or trading service, and your portfolio comes to you on-line every fifteen minutes or so. Maybe you smile because your stocks or mutual funds are going up. Maybe you frown because they fell from the last time you looked at them. But mostly you sigh, because the market isn't giving you any clear indication as to whether you made the right choices. Certainly, over time, if you stick with the stocks and mutual funds in which you've invested, you'll do pretty well. According to Ibbotson Associates, a Chicago-based research firm, stocks have proven to provide the best return on your money over the long haul, with the least risk. That sounds surprising because everybody knows that the stock market has had periods when it has crashed, but it's true. Stocks are a profitable, low-risk way to make your money grow over the long term. The problem is always relative return. Are you doing better than the market averages? Better than the rate of inflation? Better than your friends? Could you be doing even better? Do you get tired of listening to other people tell you about the great stocks they bought that have gone to record levels, while your mutual funds and stocks are just barely keeping pace with the market averages? Do you get irritated when you hear stories about people making great fortunes in the market, while your stocks seem to ho-hum along? Do you begin to wonder why some people just seem to have better access to information, and why they make better investment decisions? I'm normally pretty cheerful; but when I think about what a hard time the average investor has keeping up with the experts, I sigh just the way that you do. In fact, if I could put one of those tiny electronic chips that you find on greeting cards-the ones that sing "Happy Birthday," or some such message, into this book-I'd program my chip to heave one great big sigh every time you opened the cover. That's because I feel so sorry for the average investor. Here's why. I run a company called OTA Off The Record Research (or just OTR) which is based in San Francisco. We supply information to large institutions that invest pension money, mutual-fund money, and private money. The information we supply is designed to help those institutions make better investment decisions, both in buying and selling stocks. OTR Research has been supplying this information for several years and, frankly, we're really pretty good at what we do. Institutions rate us among the best sources from which they regularly buy information, so I guess that means we must be doing something right. OTR performs marketplace checks. Simply put, we have about 150 people who go out into the marketplace and find out what is going on, who is buying what, how much they are buying, and how often they buy. We look into how a company is doing relative to its competitors, and how an industry as a whole is doing. We translate that information into reports our clients then use to help them determine whether to buy or sell stocks, and which ones. It's that simple. When we do our job well, the institutions make big money and outperform the standard stock indices by which everyone measures performance. When you see a mutual fund or a pension fund that is beating the Standard & Poor's 500 index, chances are that information supplied by us helped them make a buy or sell decision which improved their performance. Even when we don't supply the information, it's probably fair to say that the fund is using a marketplace-check information model similar to ours. [read more]