Smart money magazine reported an obscure money manager who dropped out of college to become a stock picker. He turn $100K into $500K (400% return) in 7.5 years (90 months). Here are his secrets:
1. Ignore the economy. Where is the economy going next quarter? Where is the S&P headed? Mecham says he ignores those issues; instead he looks for stable, defensive business that can thrive whenever bad times come.
2. Don't diversity. Most mutual funds own dozens or even hundreds of stocks. But to outperform with a big portfolio, a manager has to outsmart the market simultaneously on a raft of securities. Smaller funds and private investment can only rely on just six or eight stocks.
3. Don't sweat the spreadsheets. Many Wall Street analysts build elaborate financial analyses to calculate a company's earnings growth and other patterns. But for small portfolio it is more productive to use that time trying to understand a company and its industry - the management, the competition, the customers, and so on.
4. Think decades, not quarters. Shareholders and managers tend to focus on companies' announcements of quarterly or annual earnings, and whether they beat or miss analysts' estimates. But Warren Buffett say it's more useful to try to figure out where a company will be in a decade.
5. Don't just do something; Stand there. One of the toughest things for investors to do is to sit still and do nothing - especially when nervous clients demand that they respond to short term fluctuations in the market. But most of the time, says Buffett, inactivity is the right longer term move. Mecham: "It's about keeping emotions from corroding the decision process."