Do These Fund Managers Know Something You Don't?

Wouldn't it be great to be able to position your portfolio to take advantage of the next downturn or bull market? Yeah, it would -- but you'd need a crystal ball. Last time I checked, no one had developed such a technology ... or if they have, you or I certainly won't be getting our hands on it!

But there's another sneaky way to get the inside track on just where the market might be headed: by checking out what the smartest investment professionals are doing in their portfolios.

Say goodbye to cash
As a recent Wall Street Journalarticle highlighted, many top fund managers are using this year's volatility as a chance to put some of their portfolio's cash to work. Managers such as Don Yacktman of the Yacktman (YACKX) and Yacktman Focused (YAFFX) funds and David Winters, who manages the Wintergreen Fund (WGRNX), are finding a wealth of opportunities at new, lower prices.

Yacktman has stocked up on companies including Wal-Mart (NYSE: WMT), Home Depot (NYSE: HD), and AmeriCredit (NYSE: ACF) because he thinks they will "weather the slowdown better than others." As a result, according to the Journal, the cash cushion of the Yacktman Fund has been cut from 26% down to about 10%. Similarly, David Winters has reduced his fund's cash position by more than half while snapping up foreign stocks such as Imperial Tobacco Group (NYSE: ITY) and U.K. mining company Anglo American (Nasdaq: AAUK).

Time-tested advice
These fund managers are putting into practice a basic investing tenet: Buy low, sell high.

More often than not, it seems that retail investors end up ignoring this maxim. After all, when the market is in freefall, the first urge -- perhaps the strongest urge -- is to take your money and run. Historical data shows that when the market hits a rough spot, investors tend to react by pulling their money out of stocks and equity funds and funneling it into lower-risk investments, like money market funds.

But, as nerve-racking as volatile markets can be, they also present opportunities. As fund managers such as Yacktman and Winters demonstrate, market drops are what give you the chance to "buy low," after all.

The next step
Of course, it's not as simple as buying a stock that's dropped by 20% or more. You'll also need a healthy dose of patience and fortitude, and you'll need thorough due diligence on any prospective investment.

One idea for you: If you're checking up on what the top money managers are doing right now, consider staying a while and picking up a few of those top-notch mutual funds. After all, who better to have on your side during times of market turmoil than a highly respected investment professional with years of experience managing money during difficult market conditions?

But again, be choosy; seek out managers with long tenures and proven records, as well as funds with no loads and low expenses. Another place to find some of the best funds in the business is my Motley Fool Champion Funds service. You can preview all of the mutual funds we've recommended to subscribers -- picks that are beating their benchmarks -- with a free 30-day trial to Champion Funds.

When the market cranks up the volatility, staying in the game isn't always easy. But you can take some advice from a few top minds in the investment business: When the going gets tough, the tough go shopping.

Amanda Kish heads up the Fool's Champion Funds newsletter service. At the time of publication, she did not own any of the companies mentioned herein. Yacktman is a Champion Funds recommendation. Home Depot and Wal-Mart are Motley Fool Inside Value recommendations. The Fool has a disclosure policy.