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Greenblatt on Why Fund Managers Fail

Greenblatt on Why Fund Managers Fail

2011-06-14


In an article for RegisteredRep.com, hedge fund guru Joel Greenblatt takes a look at why so many mutual funds fail to beat the market averages over the long haul, and offers tips for how the “little guy” can beat the market.

One big thing that hurts mutual fund performance, Greenblatt says, is fund fees, which can chop 1% to 2% off of your profits. Another problem, he says, is that the quest to accumulate assets (which funds want because it leads to more money made in fees) often can hinder performance. “To get big and take large positions, fund managers tend to go for big, well-known stocks,” Greenblatt writes. “But, there can be big advantages to looking at smaller companies. These companies are often too small for large investment funds to buy and for Wall Street firms to spend money on doing research. Less competition from other buyers and less available Wall Street research often mean a greater opportunity to find bargain-priced stocks among these lesser-followed small-capitalization companies.”

Greenblatt says successful investors like Warren Buffett wish they were still able to take advantage of small-cap bargains. And, he says, by the time you’ve heard of a successful fund, it’s probably so big that it can no longer benefit from such small stocks.





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