Do you suffer from portfolio envy? Do you see a stock such as GameStop (NYSE: GME ) , which appreciated some 125% in 2007, and kick yourself because it wasn't in your portfolio? Do you think of Amazon.com, also up more than 135% in 2007, and wonder why you didn't invest in it?
Well, calm down. There's a reason you never found these stocks or recognized their potential: You don't spend most of each day studying the stock market. You don't scour annual reports and financial filings for a living. You don't crunch stock numbers regularly. You're a regular person with a regular life.
Fortunately, being a regular person with a regular life doesn't mean you're out of luck. You have options. These days, I increasingly rely on mutual funds, letting skilled professionals choose the most promising stocks they can find for my investments. Better still, these pros decide when to buy and when to sell, sparing me from having to keep up with lots of companies.
Look at the Fidelity Contrafund (FCNTX), for example. According to Yahoo! Finance, the fund owns roughly 3% of GameStop. Its recent top holdings also include Gilead Sciences (Nasdaq: GILD ) , which has a five-year average annual return of 36%, and Disney (NYSE: DIS ) , with a five-year average of 13%.
The fund with the biggest chunk of Amazon.com is Legg Mason Value Trust (LMVTX), which owns more than 2% of the company. The fund's top holdings recently included Eastman Kodak (NYSE: EK ) , IBM (NYSE: IBM ) , Texas Instruments (NYSE: TXN ) , and CA (NYSE: CA ) .
Should you snap up shares of these funds as soon as you can get to your checkbook? Not necessarily. For one thing, the Contrafund is closed to new investors. Meanwhile, the Legg Mason fund has struggled in recent years, lagging the market. (Closed funds sometimes reopen, by the way.)
Just because a fund owns a lot of shares in a super performer, don't assume its other holdings are similarly golden. You need to be picky when choosing funds. You want ones with low fees, run by smart managers with impressive track records and admirable investing philosophies. Ideally, you want no load fees and low turnover in the fund.
The majority of managed mutual funds out there actually underperform the market. So be choosy -- you want only the most promising funds you can find.
It is possible to find such funds. You can do so yourself, perhaps by starting at Morningstar.com and doing a lot of digging.
Another approach I recommend (because I do it myself): Check out our Motley Fool Champion Funds newsletter. It arrives each month laden with mutual fund recommendations and updates, and it educates you along the way. Its picks are beating the market 25% to 6% on average since the newsletter's inception. You can try it free for 30 days, when you'll have full access to all past issues. You can read about every recommendation in detail -- with no obligation.
This article was originally published on Dec. 4, 2007. It has been updated.
Longtime Fool contributor Selena Maranjian owns shares of no company mentioned in this article. Amazon.com, Disney, and GameStop have all been recommended by the Motley Fool Stock Advisor newsletter. The Motley Fool is Fools writing for Fools.