incentives
Wall Street Handicaps
The rule
Job worry, huge fund size, committee approvals and quarterly pressure force big managers to play safe and lag. That handcuff is your opening.
Where it flips
The pros' caution is often right. Many small, ignored stocks are ignored because they deserve to be. 'The big funds can't buy it' is not proof it is good. The fix is to use your freedom to do the homework they skip, not to treat their absence as a green light.
A big fund manager is not free to buy the best ideas. A fund managing thousands of crores cannot move at all with a tiny company, so it ignores the small firms where the biggest gains hide. A manager who buys a famous blue-chip that then falls keeps his job. But one who buys an unknown that falls gets fired. So caution wins, not conviction. Add committees, the need to look proper every quarter, and rules against 'unproven' names. The manager is boxed in. And that is exactly where you, investing your own money, are completely free.
A worked example
A ₹40,000-crore fund could not really own Vikram's favourite ₹600-crore small-cap without breaking its own size limits. So he had a clear open road that no big fund was fighting him for. [illustrative]
How to spot it
- ·the company is too small for big funds to bother
- ·few or no big funds on the shareholder list yet
- ·pros avoid it for size or looks, not the business
Peter Lynch · One Up on Wall Street