How to Steal Wall Street’s Best Ideas

While being a contrarian can be rewarding, the crowd also knows a thing or two.

But not every crowd is created equal. When it comes to finding great investment ideas, it’s worth separating the proven market beaters from the rabble.

During my nearly eight years at The Hulbert Financial Digest, one of the things we liked to do was to see which stocks were most commonly held by top-performing investment newsletters.

While no one can predict the future, we believed consensus recommendations from long-term market beaters were more likely to outperform the market than not.

At the very least, it was another way of identifying stocks that might merit further research.

If you’re the type of self-directed investor who doesn’t mind rolling up their sleeves, you can do this type of research too.

One way is to survey the portfolios of the best mutual funds.

Perhaps the biggest benefit of the digital age is the democratization of information.

In the olden days, you might have to strap on a miner’s headlamp, head into a dusty archive, and review a fund’s individual filings by hand.

These days, you can harness the power of the Internet to do that same formerly painstaking work in mere seconds.

There are numerous fund screeners that allow you to research all manner of performance- and holdings-related criteria.

The Best of the Best

When I use these databases, I like to set incredibly stringent criteria to see which funds clear all hurdles.

First, I look for funds that beat the market over the trailing one-year, three-year, five-year and 10-year time periods.

That may seem like a ridiculous demand. After all, it’s rare for a fund to beat the market over both the short and long term. However, there are usually a select few that can satisfy this condition.

But that’s still not enough! I also look for the top 10% of funds in their respective categories over each of the aforementioned time periods. We don’t want to assume a fund is great simply because it happened to be in a hot sector.

And as a risk-averse investor, I want funds that not only achieved consistent outperformance, but did so while incurring less risk than the market. After all, that’s the sweet spot of investing.

That gets us into more technical areas, such as standard deviation and beta. But you can still use such data without necessarily understanding the ins and outs of each.

A good screener should let you look for funds that have a lower standard deviation of returns and beta than the market.

Sometimes my absurdly high standards fail to yield any results. When that happens, I simply make some of my criteria a bit less demanding until my results yield a handful of actively managed funds.

Once I’ve narrowed the list to just five or 10 funds, I look to see which stocks are most commonly held across their portfolios.

But not all stocks are buys at current prices. Some funds may have established these positions years ago.

To that end, I review each fund’s holdings to see which names were recent additions to their portfolios.

Let Us Do the Work for You

Naturally, the vetting doesn’t stop there. This process may have given me one or two promising ideas, but now I have to research the company, myself, from the top down and bottom up.

If that sounds like a lot of work … well, it is!

The good news is that Investing Daily offers a service that applies some of these same concepts, but with its own proprietary twist. That means they take care of all the heavy lifting for you.

Brain Trust Profits pores over the holdings of the world’s biggest and best investors. Then it uses its unique Alpha Cloning System to find patterns that pinpoint potential triple-digit winners.

That’s an even better way of separating the proven market beaters from the rabble, and then profiting from their best ideas.