BURLINGAME, CALIF. - 2005 was a tough year for most fund managers. According to Morningstar, the average stock mutual fund had a total return of 7%. Even superstar value-manager Bill Miller of Legg Mason's Value Trust only managed to eke out a 5.3% total return in 2005. And things weren't much better for the really hot money either. The average hedge-fund manager returned anywhere from 2.3% to 10.9% depending on which hedge-fund index you choose to follow.
These are the pros. Most have M.B.A.s or C.F.A.s and years of experience in the investment industry. They are paid eye-popping sums, typically based on a percentage of assets under their management or a percentage of gains. And, of course, venerable institutions and pension funds from Harvard to Dubai send them tens of billions of dollars each year.
Yet across the Internet, there are amateur investors harnessing the Web's resources and network, developing strategies, posting messages and recording their stock trades on electronic bulletin boards. A good many of them are logging returns five and ten times better than the so-called professionals. These amateur gurus can be found at a growing number of online stock-picking communities (for reviews of these Web sites, go to www.forbes.com/bow). At these Web sites', amateur investors trade ideas and research, and those who offer picks are typically held accountable for the stocks they are recommending. These amateur gurus are passionate about investing, despite the fact that many can only find time to research stocks and place buy and sell orders at night or before the workday begins.
Web sites such as New York City-based Value Forum and San Mateo, Calif.-based Marketocracy.com have been tracking top amateur online investors for years. Marketocracy, which offers all members the chance to invest a virtual portfolio of $1 million, has taken this a step further and created a real-life no-load mutual fund, the Marketocracy Master's 100 Fund (MOFQX). The mutual fund, with assets of $40 million, bases its investments on the trades of its best-performing community members. Since its inception in 2001, it has beaten the S&P 500.
Each year, Forbes.com's Best of The Web searches online stock-picking communities for the cream of the crop--the best performers for the most recent year. This year's class contains eight stock pickers whose day jobs range from airport worker to software developer, and 2005 returns range from 30% to over 80%.
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