Mutual support wins the game

By Amy Baldwin

Associated Press

NEW YORK – Buy low, sell high. Be patient. Don’t panic.

Such advice sounds like it comes from a mutual fund seminar on the basic rules of investing. But this wisdom actually comes from virtual managers – people who put together winning mock funds at Marketocracy, a Web site that lets investors create their own portfolios and see how they match up to professionals.

During the second quarter, Marketocracy’s top 100 virtual funds had an average return of 35.4 percent, higher than the 30.5 percent return posted by the top 100 professionally managed funds, according to Morningstar, a Chicago firm that tracks the fund industry.

Marketocracy members – there are 35,000 of them – aren’t doing virtual money managing for bragging rights alone. The Los Altos, Calif., company, whose Web site is www.marketocracy.com, says it plans to hire the best performers starting in 2003.

The thinking is that you don’t have to be a professional to beat the market, said Ken Kam, who started Marketocracy in 2000 and is its chief executive.

“Having watched this group for a year, I am surprised that even in a bad market environment there are people who know how and are able to ferret out good investing opportunities,” Kam said.

The top virtual managers attribute their success to a variety of factors:

“There’s probably some beginner’s luck involved. It’s not easy picking stocks,” said Mike Koza, a civil engineer in Sacramento, Calif., and the top fund manager in the second quarter.

“I kind of rode a good wave there. A lot of stocks were really cheap in March,” he said, noting that he joined Marketocracy in March.

Koza’s Toddly Growth Fund posted a return of 65.56 percent. Among the holdings of the fund, which concentrates on smaller company stocks, are Actrade Financial Technologies Inc. and EarthShell Container Corp.

His advice: “Be patient. In early April, some of my holdings dropped by almost half. But I hung in there. Don’t follow the market all the time. Don’t panic.”

Postal carrier Michael Kernan of Metairie, La., said he recommends investors not get too attached to their favorite stocks. He learned that the hard way as a real life investor with EMC Corp., a battered tech company.

“The best lesson I have learned in the past year is to cut your losses quickly. If a stock goes down 10 percent quickly, you have to sell it even if you love it, because it is probably going to go down more,” said Kernan, who placed third for the quarter.

“You can recover from a 10 percent loss, but it is real hard to recover from a greater-than-50 percent loss.”

Kernan’s Pelican State Technology Fund has shares of Nokia and Cabot Microelectronics Corp.

Common sense can be an investor’s best tool, said Jean-Hugo Drouillet, who works as a translator in Philadelphia.

“It may seem to simple,” said Drouillet, who placed eighth for the quarter. “But you don’t have to come from Harvard or a prestigious business school to do well.

His virtual fund, Jean-Hugo Drouillet’s Biotech Fund, includes shares of Protein Design Lab and Commonwealth Biotechnologies Inc.

So, what sort of common sense should investors follow?

“The most important thing is to exit a position when you have a huge gain and not to be too greedy,” he said. “This is the hardest part, because you are always tempted to have more and more.”