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As a strategy, it can be summed up in one word: tailgating. Portfolio manager Russell Ewing says the way to make the most money in the stock market is not to second-guess investing’s greatest minds. Instead, why not find out just who’s making the best investments and then mimic their moves?
All told, it takes a few simple steps. First, you find the best managers. "Of the 5,000 or so people running the money, we’re concentrating on the top six and examining their moves closely," says Ewing, 30, an Alexandria, Virginia, native who spent eight years working for such firms as Barnett Bank and State Street after obtaining a bachelor’s degree from Morehouse and a graduate degree from Carnegie Mellon. In fact, Ewing says his current firm, Paradigm Asset Management in New York City, spends a lot of time crunching numbers and running computer-assisted tests. Their objective: to find senior managers with various investment styles (large cap, small cap, etc.) who have a knack for finding the least expensive big name companies with the best upside potential. Once you’ve identified the all-stars, next comes the job of analyzing the characteristics of what the brain trust is buying and selling. That’s easy too. Big portfolio managers often have to file paperwork called a 13F form with the Securities and Exchange Commission when they take stakes in publicly traded companies worth $100 million or more. Scan the moves, and you’ll have an investment plan put together by the heaviest hitters around.
So what about the time lag? It only seems logical that copycats who buy and sell after the rich and famous money managers would trail the swift moves of the greats and therefore lose out on their windfalls. Not so, says Ewing. In fact, often enough the bigwigs buy just a wee bit too early, essentially parking their money in stocks that aren’t quite ready to take off. So the minute Paradigm puts its money down, things usually haven’t begun to heat up.
Paradigm’s returns are quite respectable. The New York institutional investing firm, which manages pension money for General Motors, the city of Los Angeles and the University of Texas, has posted an average annual return of 19.11% over the last three years, compared with 20.25% for the Russell 1000 Value Index. Over five years, Paradigm’s average annual return is 17.25% vs. 17.13% for the Russell 1000. Year-to-date, with the shaky going the markets have been through, the portfolio is down 0.8%, while the Russell 1000 is down 0.84%.
Ewing won’t reveal who’s at the top of his list right now, although he will divulge a few key traits of his portfolio. On average, the price-to-earnings (P/E) multiple of the stocks he holds, currently 15.4, vs. the 15.6 multiple the Russell 1000 fetches. And his stocks’ average dividend yield is 2.4%, a modest 4% greater than the 2.3% average yield for the Russell 1000.
Ewing currently has his eye on two gas and