Updated: May 3, 2013 12:14PM
Originally published: August 7, 2001
So you really think you can beat the market? Well, now you’re going to get a chance to prove it--and perhaps make the leap to becoming a professional mutual fund manager.
It’s a real-life contest and the creation of one of America’s most successful mutual fund managers.
Ken Kam was the founder of Firsthand Funds, the $1 billion family of technology funds that made its name with outstanding performance and by hiring only fund managers who had first-hand experience in their fields of technology.
Now he’s looking for a few more good fund managers, and he’s come up with an innovative way to find them and measure their abilities.
He’s created a Web site--www.Marketocracy.com--where you can create a virtual $1 million portfolio of actual stocks, which you’ll post online at the site. Just like a real-life portfolio manager, you can trade throughout the day, changing and updating your portfolio.
Every afternoon the site’s computers will calculate the net asset value of your fund. At the end of three years, at least five winners will be announced--and hired to manage real money.
Founder Kam points out that every year only about 20 percent of the 8,000 professional money managers beat the Standard & Poors 500 stock index. So he’s searching for individual investors who can consistently “beat” not only the market indexes, but the professionals who are paid to do the job.
“It’s Marketocracy’s premise that some of the world’s best investment track records will come from individual investors,” he said.
This is not just a game. Kam has invested part of his own fortune (and cash from a small group of private investors) to create the Web site and the tools that make it work. The site accepts no advertising. And Kam promises to reward the winners by paying “handsomely” if they are chosen to become professional money managers.
When I talked with him in San Francisco, I wondered if it was a bit risky to eventually place real money in the hands of the winners, who have been investing only virtual cash. He responded that people who invest in funds that don’t even match the performance of their indexes are actually taking even more risk. And he expects that the three-year tracking period for this contest will weed out those who hold a “hot hand” for just one cycle of the market.
Still, by dividing the fund management among five contest winners, they’ll be able to ensure that outstanding performance is maintained.
Since the Marketocracy Web site opened in July, more than 20,000 individual fund portfolios have been created. At the moment, you can’t compare your performance with the others, but this week the site is planning to post the names of the “funds” that are leading the pack.
It’s easy to get started creating one or more funds on the site. When you arrive at the Marketocracy home page, you simply click on the “become a member” button. You’ll be asked for your name and e-mail address, and then to create and name one or more funds. So if you fancy yourself to be a major league player, you could create technology funds, small cap funds, growth funds--a whole fund family. Each will be tracked separately.
The site also has useful professional investment tools to help manage the funds efficiently. You’ll be able to view, and chart, your funds’ performance and volatility.
Because this is a real-life, yet virtual, experience, the prices at which you buy and sell securities will reflect a real-time simulation. Orders are time-stamped and then compared with those completed in real time (but price quotes at the Web site have a 15-minute delay). And “commissions” are charged on each trade at the low rate of 5 cents a share.
Taxes are tracked for statistical purposes but do not affect fund performance. However, both tax information and turnover ratios (the frequency of trading) will be considered when selecting the ultimate winners who will become fund managers.
Historically, there’s been a lot of argument about whether it’s truly possible to “beat” the market over the long run. Proponents of indexing argue that the very fact that so many professionals underperform the averages proves that you’re better off just buying an index fund and being satisfied with matching the performance of the averages.
Ken Kam is out to prove the indexers wrong by finding managers who continually outperform the market as a whole.
So if you’ve been bragging about your stock-picking talents, this is the time to put them to the test at Marketocracy.com. It’s virtual investing, so you have nothing to lose but your pride--and everything to gain if you win.
And that’s the Savage Truth.
Terry Savage is a registered investment adviser for stocks and commodities and is on the board of directors of McDonald’s Corp. and Devon Energy Corp. You can send questions to her via e-mail at firstname.lastname@example.org. Her third book, The Savage Truth on Money, was recently published by John Wiley & Sons Inc.