The tough part about investing in stocks is that public information is often inaccurate or worthless, and professional fund managers generally won’t perform better than the proverbial monkey with the dartboard.
But suppose you started an investment group comprised of engineers who evaluate vendor proposals for their day jobs. That group normally has insight that the public doesn’t yet have. If not, why bother evaluating anything? And yet the opinions the engineers generate would not be insider information because the products they evaluate belong to other companies. [Someone please correct me if I’m wrong about that.]
My hypothesis is that the technology folks who are routinely reviewing vendor proposals have better and more current knowledge about other technology companies than even the CEOs of the companies being evaluated. A CEO only knows what his staff tells him. And we all know how weasel-skewed that can be.
Technology magazine/website reviews of products are generally worthless too, in part because magazines accept ads from the companies they review, and partly because products change faster than the magazine/website can keep up.
In my old corporate life I worked in a technology lab at the local phone company. The engineers were continuously evaluating the products of other companies to see what worked best with the network. I remember asking one of the top engineers which company he would recommend if I wanted to buy stock. He said there was just one: Cisco. It was the early nineties and the first time I ever heard the name of the company. Had I taken his advice, I would have made a 500% gain on my money, assuming I got out at the top of the bubble.
So I wonder if you could form a sort of secret investment society of engineers whose work brings them near the gears of civilization. The idea would be to capture the ever-changing opinions of perhaps a thousand engineers, software professionals and other tech experts working in the trenches and funnel that knowledge into an investment fund. Let’s say the engineers get to participate in the fund without a management fee that other investors pay, typically in the 1% per year range, which is probably enough incentive. The fund’s management would work to find patterns in the opinions of its pool of technology experts, sort out the good predictors from the bad, avoid insider trading, and translate the knowledge into stock purchases.
[Update: To clarify, the engineers would only provide information on which companies have the best products at any given moment. They wouldn’t be picking stocks or evaluating cash flow or anything else.]
Would the fund beat the monkey with a dartboard?