New Buyers, most Fund Buyers

250 Commentary on Chapter

A complete listing of the S & P 500’s constituent companies is available at www.standardandpoors.com.They shut the door. The best funds often close to new investors- permitting only their existing shareholders to buy more. That stops the feeding frenzy of new buyers who want to pile in at the top and protects the fund from the pains of asset elephantiasis. It’s also a signal that the fund managers are not putting their own wallets ahead of yours. But the closing should occur before-not after-the fund explodes in size. Some companies with an exemplary record of shutting their own gates are Longleaf, Numeric, Oakmark, T. Rowe Price, Vanguard, and Wasatch.

They don’t advertise. Just as Plato says in The Republic that the ideal rulers are those who do not want to govern, the best fund managers often behave as if they don’t want your money. They don’t appear constantly on financial television or run ads boasting of their No. 1 returns. The steady little Mairs & Power Growth Fund didn’t even have a website until 2001 and still sells its shares in only 24 states. The Torray Fund has never run a retail advertisement since its launch in 1990.

What else should you watch for? Most fund buyers look at past performance first, then at the manager’s reputation, then at the riskiness of the fund, and finally (if ever) at the fund’s expenses.